Time-Driven Activity Based Costing

This assignment delves into the concept of Time-Driven Activity Based Costing (TDABC). It examines the theoretical framework of TDABC, highlighting its advantages over traditional activity-based costing (ABC) systems. The document discusses practical applications of TDABC in various industries and explores its impact on performance measurement and cost management. Furthermore, it compares TDABC with other costing methods, emphasizing its strengths and limitations.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the student
Name of the University
Author note

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Table of Contents
Introduction:....................................................................................................................................2
Description of the client’s firm:.......................................................................................................2
Description regarding TDABC and its features:.............................................................................3
Difference among traditional costing mechanism, TDABC and ABC:..........................................6
Suitability check of TDABC for firm’s clients:..............................................................................7
Conclusion:......................................................................................................................................8
Reference:........................................................................................................................................9

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Introduction:
With rise in competition among the firms, it has been highly essential for the managers to
understand the importance of cost for their firms irrespective of its size. Whether it is a big
multinational organisation or a small firm, it is important to understand the costing method
(Hemmer and Labro 2016). Main goal of understanding the costing is to provide proper
information regarding the internal decision-making and provide much needed outlook for the
control and planning purpose of the firm (Cooper 2017). Besides this, knowledge regarding
costing aids the mangers to assess the alteration in the market scenario and trace out changes in
trade. This report considers the TDABC method of costing and highlights its various
importances. Besides this, an overview regarding different methods of costing that include ABC
and traditional method of costing will be given in this analysis. Along with this, the report will
try to draw difference between TDABC, traditional costing system and ABC method of costing.
Moving further, the report will highlight the suitability of TDABC in the ADCO construction
and provide details regarding implementation of TDABC in the firm.
Description of the client’s firm:
The ADCO Construction is one of the leading construction companies of Australia that
has been serving national project since 1972 (Adcoconstruct.com.au, 2018). According to the
words of ADCO Construction, until 2017, the company has served almost 3,500 completed
projects and it is valued at $10 billion. With its annual revenue figure of $1 billion and almost
600 employees, ADCO is one of the top 50 private organisations of Australia. Main service of
the brand lies in the construction industry and its high level of resources enable the firm to
remain aligned with the latest techniques of construction. Besides this, the firm is well known for
its practical utilisation of materials and products that provides the firm efficiency, which is at par

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with the commercial manner. Continued success of the ADCO Construction has enabled the firm
to find its customer from blue chip base of client that comprise state, federal and local
government agencies (Adcoconstruct.com.au, 2018). Besides this, the firm has served various
institutional and private corporate with their service of construction, making the firm a market
leader in the construction industry. The firm has wide base of 580 to 600 direct employees and
40% of them are engaged in operation with the firm for more than 7 years
(Adcoconstruct.com.au, 2018). With their efficient allocation of human capital and resource
allocation, turnover rate is lower than its competitors that have lead the firm to a better goodwill.
ADCO Construction guarantees delivery to their clients, according to the manager of the firm,
which has been gained through combination of unique techniques, skilled labour and idea of
costing.
Description regarding TDABC and its features:
Until 1984, firms used to prefer traditional method for costing, however scenario changed
when Activity Based Costing (ABC) came into action. Traditional mechanism of costing was
introduced during 1920, and it used to consider only three costing parameters, which are
materials, labour and overhead (Weygandt, Kimmel. and Kieso 2015). However, with change in
market scenario and economy of business, traditional costing mechanism started to become
complex and traditional accounting failed to calculate the overheads. By the time of 1984, firms
started to utilize distorted information regarding orders, customers, products and profitability that
has crippled the standard method of accounting. Thus, during 1984, a new mechanism of costing
was introduced, which was known as the ABC (Plank 2018).
Activity Based Costing mechanism was presented as the completed method of costing
that not only addresses the pitfalls of the traditional methods moreover enable the mangers to

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customize it depending upon the requirement of the present scenario. However, many firms
rejected it due to various complications leading to search for another model of costing that
addresses the drawback of the ABC mechanism. According to the Prasad (2014)Major reasons
for rejecting the ABC model were its organisational and behavioural resistance. Besides this, the
ABC model was intricate to sustain, hard to customize according to the need and expensive to
introduce in the firm. It need rigorous survey and interviewing of the employees that makes it
complex and expensive to be implemented in the firms. Moreover, if any customization required,
then reinter viewing and resurvey need to be done, making it complex. Success came in 2004,
when one of the initiator of ABC model, Kaplan, brings in another new mechanism of costing,
which is known as the Time Driven Activity based Costing (TDABC) (Kaplan 2014). According
to him, TDABC is more accurate, elegant and simplified approach for costing. Besides this,
TDABC is cost effective mechanism of costing and it aids the firm to customize the model
deepening upon the requirement.
TDABC offers better information regarding the earnings of the firms and it accurately
demonstrates the frequency of profit. Utilizing the cost difference among the customers who
have higher demand along with complex client preference than those who have lower demand
along easy customer preference, TDABC highlights accurate result of profitability of the firms
(Afonso and Santana 2016). Simplifying the process of costing compared to the ABC method
was one of the main reasons for bringing in the TDABC and it successfully does so. This new
model of costing does not require any surveying or interviewing for resource allocation for the
activities of the firm before inserting them into the cost objectives; instead, TDABC model using
a comprehensive framework, assigns the cost of resources directly toward the cost objectives.
Utilizing two set of factors TDABC calculates the costing details of a firm and enables the

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managers to assess their optimal outcome, profitability and various other factors that affects the
firms business. Two factors of computing TDABC are as follows (Stouthuysen et al. 2014):
1. Rather than using the information from survey and interview, it computes the cost of
resource supplying
2. TDABC utilizes the Capacity Cost Rate in order to bring in departmental costs into the
computation of cost through estimation of resource capacity for demand.
Using the time requirement for performing an activity, TDABC is highly efficient to
recognize the cost of every unit including the cost of allocation. Various features of the TDABC
are as follows (AhmadPour and AzimiMoghadam 2016):
It is a complete strategic model, which is fast, easy to build and inexpensive in nature
This model successfully identifies the opportunities for capacity management and process
efficiencies
One of the best features of this model is that it can be customized and updated easily
depending upon the requirement of the firm
The model is based on the individual customer orders, suppliers, process and
transactions, thus it is efficient and effective for cost calculation of the firm
This model allows forecasting demand of resources that permit the companies to frame
their budget and trace out ideal level of output utilizing the database technologies and
application software
TDABC integrate Enterprise Resource Planning (ERP) information though an efficient
way and enables the TDABC to become a vibrant system for Customer Relationship
Management

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Difference among traditional costing mechanism, TDABC and ABC:
Utilizing the imitation of equation ad variable TDABC projects numerous forecasts for
the firm. Compared to the ABC method, it determines the cost allocation for every department
depending upon the cost object of every department (Namazi 2016). These are the various
differences between the traditional costing, TDABC and ABC:
.Traditional Costing ABC TDABC
Traditional costing method aids
to allocate overhead cost for each
unit produced.
Various overhead activities are
identified in ABC method for
proper calculation of the costing.
Finding out numerous clusters of
resources is the focus of
TDABC.
It considers only three variables
for computation of the cost,
which are materials, labour and
overhead.
This mechanism of costing
considers the survey and
interview of firm’s employee to
chalk out the costing.
This framework of the costing
needs only the information
regarding cost of resource
supplying for cost (Santana,
Afonso and Rocha 2014).
Cost of productions is allocated
only to the products.
It finds the cost driver for
different activities and then
allocates then calculates the cost.
It includes the Capacity Cost
Rate in order to bring in
departmental costs into the
computation of cost
It is not potent to differentiate
between non-manufacturing cost
with the item produced
It divides the total amount of
activity by the practical amount
of activity for each task in order
to compute the cist driver.
It finds the cost driver by
dividing the each unit cost with
the practical capacity of each
group.
Table 1: Difference among traditional costing mechanism, TDABC and ABC
Source: (Created by Author)

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Traditional mechanism of costing was introduced way back during 1920s and uses direct
labour hours for deciding the costing overheads for manufacturing of each product. However, it
fails to differentiate between the non-manufacturing cost and the manufacturing cost that makes
it unable for the customizations. One the other hand, new mechanism of TDABC aids the firm to
measure effectiveness in production of the goods and services of the firm. According to the
Gunasekaran, Williams and McGaughey 2015, TDABC requires time projection for the process
in order to process the customer orders and it does not mandatorily follow the principal of
traditional accounting system, where customer cost need to be equal with the projected cost.
Suitability check of TDABC for firm’s clients:
Utilizing the traditional framework of costing for the ADCO Construction the firm can
distribute the cost of its resources towards the activities before sending them toward the cost
objects. One of the important consideration need to look out in this regard is that the TDABC
mechanism will be beneficial for the firm because it uses smart framework for the estimation of
the profit (Todorovic 2014) . TDABC uses Cost Capacity Rate for finding the resource cost by
utilizing the demand of the resources, which will help the ADCO Construction in time estimation
for customer order process. Moreover, it would aid the firm to have a watch on the variations in
the market and alert the firm regarding the projection of storage, capital and production
requirement (Namazi 2016). Additionally it would help the firm to sustain in its business
ventures proving it better sustainability.
Thus from the above analysis it can be stated that if the ADCO Construction used the
TDBAC framework, then it would help the firm to have better profitability and smooth
transformation of its business from ABC to TDABC (Hoozee and Hansen 2014). Smart
framework of the TDABC would be beneficial for the firm to upgrade and customize the

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accounting mechanism for the firm and enable it to forecast the demand properly. Additional
benefits of utilizing the TDABC for the ADCO Construction is that it if the firm uses TDABC,
then it would cost less for accounting because it does not require any survey and interviewing of
the employee of various departments and enhance the ERP (Ai-Min et al. 2016). Moreover, it is
also required to highlight that being a flexible framework of costing; it would enable the firm to
customize the model for further alteration in future depending upon the requirement.
Conclusion:
The report has analyzed the various aspects of TDABC and compared it with the ABC
and the traditional mechanism of auditing. From the comparison, it has been found that TDABC
is far more superior and complete mechanism of costing calculation. It not only simple and
inexpensive, moreover it aids the firms to forecast their demand and make budgetary framework
accordingly. This report was meant to analyze if an organisation like ADCO Construction imply
TDABC into its framework, then how would be the suitability of this implementation. The report
has found that TDABC, being the easiest framework of costing, would be highly beneficial for
the firm. TDABC model will help the firm to avoid costly mechanism of costing and saves lot of
time on behalf of this computation. Moreover, the report has found that TDABC will help the
managers of the ADCO Construction, to overcome the problems related to their CRM and ERP
system. Though TDABC analyzes the historical data, however, it can effectively determine the
future trend and help the firm like ADCO Construction to forecast their future. To conclude, it
can be said that, TDABC is a complete mechanism of costing and if the ADCO Construction
implement it in its framework, then it would help the firm to become more successful with its
ventures by utilizing the cost effective mechanism of costing and forecasting.

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Reference:
Adcoconstruct.com.au. (2018). Overview | ADCO. [online] Available at:
http://www.adcoconstruct.com.au/about-us/overview/ [Accessed 25 Jan. 2018].
Adcoconstruct.com.au. (2018). Projects | ADCO. [online] Available at:
http://www.adcoconstruct.com.au/projects/ [Accessed 25 Jan. 2018].
AhmadPour, J. and AzimiMoghadam, A., 2016. Identifying operational improvements during the
design process of costing system based on time-driven ABC (TDABC)(The role of staff public
participation and leadership style). Bulletin de la Société Royale des Sciences de Liège, 85,
pp.999-1016.
Ai-Min, D.E.N.G., Hong, L.I. and Hao, T.I.A.N., 2016. Based on the Cloud ERP and TDABC
for the SMEs’ Logistics Cost Accounting. DEStech Transactions on Engineering and
Technology Research, (sste).
Cooper, R., 2017. Target costing and value engineering. Routledge.
Gunasekaran, A., Williams, H.J. and McGaughey, R.E., 2015. Performance measurement and
costing system in new enterprise. Technovation, 25(5), pp.523-533.
Hemmer, T. and Labro, E., 2016. Productions and Operations Management & Management
Accounting.
Hoozée, S. and Hansen, S., 2014. A comparison of activity-based costing and time-driven
activity-based costing. Journal of Management Accounting Research.
Kaplan, R.S., 2014. Improving value with TDABC. Healthcare Financial Management, 68(6),
pp.76-84.
Namazi, M., 2016. Time-driven activity-based costing: Theory, applications and
limitations. Iranian Journal of Management Studies, 9(3), p.457.

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Plank, P., 2018. Introduction. In Price and Product-Mix Decisions Under Different Cost
Systems (pp. 1-5). Springer Gabler, Wiesbaden.
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