TDABC Costing for Woolworths Ltd.

This assignment examines the application of Time-Driven Activity-Based Costing (TDABC) for Woolworths Ltd., highlighting its advantages in managing resources and transactions efficiently. It explores how TDABC can help Woolworths forecast demand, prepare budgets, and improve overall cost control. The analysis emphasizes the practical benefits of TDABC for a company with limited resources.

Managerial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
1. Description of Woolworths Limited.......................................................................................1
2.Time driven activity based costing and its features................................................................2
3. Difference between Time driven activity based costing and traditional costing systems.......3
4.Suitability of TDABC for Woolworth s Ltd............................................................................5
CONCLUSION................................................................................................................................6
.........................................................................................................................................................6
REFERENCES................................................................................................................................7
.........................................................................................................................................................8

INTRODUCTION
Time-driven activity-based costing is the revised model which is used by the organisation
to estimate the requirement of resources in completion of each task or product. TDABC is the
simple model which is easy to implement requires less resources in comparison to other costing
models. This model is easily update the changes which are happen in processes, order variety
and cost of resources. TDABS has large number of importance which helps in handling of large
number of transactions and contributes in real time reporting. Woolworths limited is an
Australian company which provides their products and services in Australia and New Zealand.
This company deals in the diversifies products which includes Food, Petrol, Liquor, Home
improvement, General merchandise etc. The bakery indulge in producing organic whole grain
breads and bagels (Anderson and Sollenberger, 2011).
In the present report explain about, Time-driven activity-based costing and its features,
Difference between Time-driven activity-based costing, Activity-based costing and traditional
costing system.
TASK
1. Description of Woolworths Limited
Woolworths Limited is the Australian company which deals in diversified products. This
organisation has large retail interest in Australia and New Zealand. The major areas in which the
company provides their services are Australia, New Zealand and India. The diversified products
which are provide by company in different country includes Food, petrol, liquor, general
merchandise, home improvement, hotels and gambling etc. The large number of employees
around 202000 are working to mange the different function in all over the world. It terms of
revenue Woolworth s Limited is the second largest company in Australia. This organisation is
recognised as the largest retailer of liquor in Australia. This company has large number of
supermarket chains to provide their different products and services in Australia and New
Zealand. This organisation also has hotels and pubs in Australia. In 2016, the profit which is
earned by company from their different business activities is $ 1.2 billion dollar. The main aim
of management is to adopt such costing model which is effective to manage the different
activities and accomplish their targets in stipulated time. For this purpose, they are advised to
adopt Time driven activity based costing system which is the revised model of traditional costing
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system. This model has large number of importance for the manager of company to effectively
allocate the resources to complete their tasks on time. It is very easy model to implement in
organisation as comparison to traditional costing systems.
2.Time driven activity based costing and its features
Activity– based costing is a method in which activities of an organisation are identified
and cost are assigned accordingly the evaluation which is based on allocation of resources to
product and services according to their consumption. In this method the indirect costs are
added to direct costs due to this overloading of indirect cost unnecessary losses are mounting.
So manager these days have abandoned the practice of using ABC , instead they are
implementing by relying on Time Driven activity based costing which has helped managers to
make more flexible cost model to ease out the complication of the model.
According to CIMA(Chartered Institution of Management Accounting ) the TDABC
involves an time driven activity of analysing resource consumption and calculating the cost and
planning future activities (Chenhall and Smith, 2011).
Features of Time Driven Activity Based Costing
 Estimation of cost per unit of capacity – Managers estimates the practical capacity of
resource supplies in place of surveying on employees time consumption.
 Estimating unit time of activities – after successfully calculating the cost per unit time of
the following resources the role of manager is to allot employee and define the time
needed to complete that activity
 calculation of cost-driven rates-they can be easily calculated by multiplying several input
variables once the standard rates are calculated the new policies for new ventures and
business are planned
 identification of product and services – identification and elimination of services which
are unprofitable and fetching lower profits or overprices .
 Manufacturing – it helps in better planning in manufacturing sectors having effective and
better promotional activities and increasing the sales
 financial institution -like the manufacturing industries it also have variety of products
and services in financial sectors which can result in cross-product and cross customer
activities. The personal factors can also be attributed accurately
 lean accounting – the time driven activity based can be successfully performed through
lean accounting practices which helps in easy calculation and planing of accounting,
controls and measure complete costing methods.
Applications of time driven activity based costing
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 it is applicable through company costing and financing practices
 they helps in full scope and parctical view of accounting practices
 they helps in planning and allocating of resources effectively
 help in control costs in product level and departmental level
 it helps in identifying and eliminating unnecessary cost of product
Reasons for implementing TBABC
 easy budget and performance measurement
 cost accounting
 evaluation and and estimation of budget for implementing new technologies
 increase growth rate of company
 data and surveys performance are easier to measure as many analysis through analytical
tools can be performed through analytical too

 flexibility and accountability gets easier
 it is easy to keep pace with management innovation tools like TQM and JIT systems.
Limitations
Treatment of fixed costs as variables sometimes leads to wrong assumption of data
analyse. It is some time very difficult to trace and differentiate between the indirect and direct
costs.
Public sector usage is very low sop people find it very difficult to understand the concept
of time driven activity
3. Difference between Time driven activity based costing and traditional costing systems
There is huge difference between the two models of costing which are Time driven
activity based costing and traditional costing systems. Both these methods are used for the
allocation of indirect cost to the different products. Such allocation of indirect cost helps in
identification of the estimated overhead cost accompanying to production of different products.
In spite of having the same functions, both the costing methods have large number of
differences. First difference which arise while using the both these costing methods is on
accuracy and complexity (Joseph, 2014).
Traditional costing system
It is the costing method which is used by the organisation in allocation of the indirect cost
to products on the basis of their planned overhead rates. It is the simple method to use but doesn't
provide accurate results in comparison to Time driven activity based costing systems. It is the
costing method, in which all overhead costs are treated as single bundle of indirect costs. This
method provides better results only in one condition when direct costs are more than indirect
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cost. There are many steps are involved in the calculation of Traditional costing systems which
are define below:
 The first step includes about the calculation of indirect cost while using this method of
costing
 Second step includes about the process of approximation regarding indirect cost for
particular period
 Third step includes about the determination of cost driver like labour hour, machine hours
etc.
 Fourth step includes about approximation of the cost for such particular cost driver
 Fifth step includes about, computation of planned overhead rate
 Last step includes the process of assigning of overhead to products by using planned
overhead rate which is calculated above (Kaplan, 2011).
Time driven activity based costing system
It is the revised model of Activity based costing system which helps in allocation of the
time and determination of the demand of different resources required by each transaction,
product etc. This system helps the organisation to effectively manage the limited resources. Use
of this method reduces the need of information and approximate only two things which are
mentioned below:
 Capacity of resources and their cost
 Time required in performance and completion of transactional activities.
The major concepts which are include in the calculation of TDABC are:
 To prepare effective time based module regarding one activity which is flexible to use
and applied on other plants and companies of same industry.
 It is the easiest model which requires less time and resources to implement in
organisation. Also very easy to finding out the conclusion, for ex. It requires only two
persons and two days in a month to load, compute, report finding etc.
Difference between TDABC and Traditional costing system
Time driven activity based costing system Traditional costing system
It is the revised model which provides accurate
results
This method of does not provide accurate
result s because it assumes overhead cost as
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single bunch of indirect cost
This method provides help to manager to
manage the function in limited resources
Costly in timely allocation of resources
This method is flexible which easily adopts the
changes and perfectly handle the large number
of transactions simultaneously.
Difficult to update the system as per the
changes happen in future
4.Suitability of TDABC for Woolworth s Ltd
Woolworth s Ltd is big organisation having diversified business activities. It is the duty
of the management is to effectively operate the functions regarding the accomplishment of their
desired results on time (Khalil and Simon, 2014). For this purpose, management of Woolworth s
Ltd decided to adopt new model of costing named Time-driven activity based costing system.
Due to the implementation of this model the large number of benefits are derived by company.
These benefits shows that this model is largely suitable for the transaction of organisation. Such
advantages which are got by the management are mentioned below:
 Improved decision making: Application of this model helps in identification and
reporting of the complex processes which is working as assistance regarding negotiate
with customers. This helps in ascertainment of the costs which are incurred on products
and provides opportunity to Woolworth s Ltd to make changes in structure design and
improves their profitability.
 More flexible and insightful: TDABC is more flexible in comparison to traditional
costing system and with help of ERP system provide deep insight on every single
transaction. This helps in analysis of the cost and profitability which is derived by
company through their products. This system helps the management of Woolworth s Ltd
to simplify the whole accounting system and replace the large number of functions which
some few processes. This helps in completion of task within time.
 Managing complexity: TDABC helps in handing the more complex situation in very
easy manner. Recalculation of the cost driver rate whenever salary is increased or new
machines are installed helps in creation of more diversified overview of cost.
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 Forecast budget:By the use of this model of costing Woolworth s Ltd are easily forecast
the demand of the resources which are required by different departments in preparation of
the products. This also helps in preparation of the budgets and allocation of the funds.
 Flexibility: This model provides the flexibility to the management of Woolworth s Ltd as
they have the option to make the changes in the model whenever the change happen in
activities (Maher, Stickney and Weil, 2012). It is improved the decision making power
and provides lot more time to concentrate on other matter and improve their profitability
by effectively allocation of costs.
CONCLUSION
It has been concluded from the above report that, Time driven activity based costing
system is the effective model which helps in easy budgeting and management of performance,
improve the growth rate of Woolworth s Ltd. makes the accountability more easier and
effectively manage the transactions in limited resources. From the effective features of TDABC,
it is clear that this model of costing is highly suitable for Woolworth s Ltd. This is so because the
large number of benefits are derived by the management like forecast resource demand and
prepare budgets, easy to operate and not much expensive to adopt changes.
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REFERENCES
Books and Journals
Anderson, L. K. and Sollenberger, H. M., 2011. Managerial accounting. Cincinnati, Ohio:
College Division, South-Western Pub. Co..
Chenhall, R. H. and Smith, D., 2011. A review of Australian management accounting research:
1980–2009. Accounting & Finance, 51(1). pp.173-206.
Joseph, M., 2014. Debt to Society: Accounting for Life under. University of Minnesota Press.
Kaplan, R. S., 2011. Accounting scholarship that advances professional knowledge and practice.
The Accounting Review, 86(2). pp.367-383.
Khalil, M. and Simon, J., 2014. Efficient contracting, earnings smoothing and managerial
accounting discretion. Journal of Applied Accounting Research, 15(1). pp.100-123.
Maher, M. W., Stickney, C. P. and Weil, R. L., 2012. Managerial accounting: An introduction
to concepts, methods and uses. Cengage Learning.
Park, K. and Jang, S., 2014. Hospitality finance and managerial accounting research: Suggesting
an interdisciplinary research agenda. International Journal of Contemporary Hospitality
Management, 26(5).pp.751-777.
Russo, C. J., Mertins, L. and Ray, M., 2013. Psychological type and academic performance in
the managerial accounting course. Journal of Education for Business, 88(4). pp.210-
215.
Songini, L., Gnan, L. and Malmi, T., 2013. The role and impact of accounting in family
business. Journal of Family Business Strategy, 4(2). pp.71-83.
Wall, F. and Greiling, D., 2011. Accounting information for managerial decision-making in
shareholder management versus stakeholder management. Review of Managerial
Science, 5(2-3), pp.91-135.
Online:
The Advantages and Disadvantages of Budgeting. 2017.[Online]. Available
through:<http://www.bifa.org/library/freight-management/finance/budgeting/the-
advantages-and-disadvantages-of-budgeting> .
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