Activity-Based Costing in Tata Motors

The assignment delves into the concept of activity-based costing (ABC) and its application within the context of Tata Motors, a leading automobile manufacturer. Students are tasked with analyzing the benefits, drawbacks, and implications of adopting ABC for cost management within the company. The analysis should consider factors such as cost allocation, product profitability, and operational efficiency.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Time-Driven Activity-Based Costing

MANAGERIAL ACCOUNTING 1
Table of Contents
Introduction...........................................................................................................................................2
Overview of Tata Motors Company...................................................................................................2
Vision.............................................................................................................................................3
Mission..........................................................................................................................................3
Manufacturing of Tata Motors Vehicles........................................................................................3
Time-Driven Activity-Based Costing...................................................................................................4
Time Equation................................................................................................................................5
Features of Time-Driven Activity-Based Costing................................................................................6
Difference between TDABC and Activity- Based Costing and Traditional Costing System.................6
Suitability of TDABC for Tata Motors.................................................................................................7
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

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Introduction
The report is being prepared in order to check whether the Time-Driven Activity-Based
Costing is suitable for Tata Motors Company or not. In order to proceed, the report will
provide a brief description of the Tata Motors Company along with the concept and features
of the Time-Driven Activity-Based Costing. The report will also explain the difference
between Time-Driven Activity-Based Costing, Traditional Costing system and Activity
Based Costing.
Overview of Tata Motors Company
The automobile industry is one of the most revenue earning industry which is growing with
time. The automobile industry deals in the trading and manufacturing of vehicles that consists
of farm equipment, trucks, commercial vehicles and passenger cars. This industry offers
people to reach their destination such as office, shopping, etc. on time (Infoplease. 2017).
Tata Motors Company is a well-known and one of the top companies in the automobile
industry. The company was founded by Jamsetji in 1868 (Tata Motors, 2017). Tata Motors
has the membership of USD 100 billion group. The services of the company are customer-
centric this is because of their Moto i.e. of giving back to the community and surviving in the
market for longer time duration. Therefore, they maintain good relations with their
customers, suppliers, as well as with their competitors.
The efforts of the company are towards changing the background of the automobile industry
by offering a variety of choices of the customers. The demand and choice of the customer are
respected in the company and therefore they try to bring new technologies with enhanced
performance. The passenger cars of Tata Motors are designed for advanced connectivity,
luxury, and performance. The focus of the company is on their future objectives and to offer
best quality and service to their customers. Further, the research and development department

MANAGERIAL ACCOUNTING 3
of the company is majorly in Italy, UK, India, and Korea. The company has entered into the
various strategic acquisition and joint ventures in order to launch new and different products.
The global strategy of Tata Motors is to maintain their operations in three segments which are
Passenger cars, Utility vehicles, and Commercial vehicles. Tata Motors main agenda of
globalization was to increase the market share, customer base, and revenue.
Vision
The vision of Tata Motors is to be admired by their business partners, customers,
shareholders, and employees for the value and experience they gain while working with them
(Daniels, 2017).
Mission
The mission of Tata Motors is to be passionate about expecting and offering the vehicles with
best quality, features, and experiences to customers globally that excite them (Tata Motors
Annual Report, 2015).
Manufacturing of Tata Motors Vehicles
The manufacturing service of Tata Motors does not only involve advanced technology but
they have the talented and skilled team of employees and engineers who develop vehicles
with best quality (Tata Motors, 2017). Company’s manufacturing plants are certified for
delivering vehicles with manufacturing standards and best quality. The reason behind the
success of the company in the automobile industry is the focus of their manufacturing
department which is on automation of technology. The development cycle is the feature of IT
industry which is reducing the involvement of human. Digital Manufacturing is known as the
computer based management of manufacturing process. In today’s scenario, all the

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organizations are taking benefit of Digital Manufacturing. The productivity of Tata Motors
Company has improved due to the offering of Digital Manufacturing such as “Design for
Manufacturing and “Design for Servicing” and were successfully managing their
manufacturing process. This process has reduced the cost and time of manufacturing process.
Time-Driven Activity-Based Costing
The Time-Driven Activity-Based Costing offer companies a sophisticated and applied choice
for defining their processes capacity and cost utilization and orders profitability, customers
and products. Time-Driven Activity-Based Costing allows companies to recover their
systems of cost management, not abandon them (Sethi, Bogataj and McDonnell, 2012).
Managers of the companies obtain precise information of profitability and cost to fix main
concern for process enhancements, justify their mix and variety of product, the price of the
customer orders, and handle the relationships with the customer in such a way that is
beneficial for both the parties. Time-driven activity-based costing simplifies the process of
costing by excluding the survey and interview needs and assigning the cost of resource for
the activities of organization operations before making them down to cost objects (customers,
products, and orders, products). Under this method, resource costs are directly assigned to the
cost objects by making use of a sophisticated framework demanding only two sets of
estimations, which are very easy to acquire.
First, the calculation has been done for providing the cost resource capacity. For example,
think of a process or department for managing the orders of customers (Anderson and
Kaplan, 2017). In this step, the model of TDABC computes the resources cost and
occupancy, personnel, technology, supervision, and equipment are provided to this process or
department. It assists in dividing this entire cost by the capacity of the available time from the
employees essentially executing the department’s job to attain the capacity cost rate.

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Second, Time-driven activity-based costing makes use of cost rate of the capacity to
determine the cost of department resources to cost objects by assessing the resource capacity
demand that all cost object needs. For example department of receiving the customer order,
the method needs only the estimation of the requirement of time for processing a specific
order of the customer. But time-driven activity-based costing does not need that all the order
of customer is the same. It permits the estimated time to differ depending upon the precise
demand of a specific order, like automated or manual orders, advanced orders, delicate or
dangerous goods orders, international order or new customer order lacking a record of current
credit. The method of TDABC encourages the actual procedures used to achieve work during
the operation of an enterprise. Therefore, it can detect far more difference and difficulty as
compared to ABC method, without making an explosion demand for data assessments,
packing, or handling abilities. By making use of TDABC, a company can hold difficulty
rather than using easy, imprecise ABC models of its multifaceted businesses.
Time Equation
The Time-Driven Activity-Based Costing simply includes deviation in the time demands
created by various dealings. It does not need the shortening supposition, made so far, that
every transaction or order is same and need same time duration for the processing (Robert,
2007). Time-Driven Activity-Based Costing also offer managers with an ability to reflect the
future. The principal factor is captured by the equation that generates the demands for the
capacity of the process, along with the variations in the process competences, product mix
and volume, channel mix and customer order patterns. Time-Driven Activity-Based Costing
model can be used by the managers in order to execute dynamic what-if examination of
numerous situations. This model can be simply combined into a new process of making
financial arrangements that systematically compute the essential spending and supply on the

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capacity of resource which is required to supply on future periods’ production and sales
strategies.
Features of Time-Driven Activity-Based Costing
 It offers various business organizations to improve their cost management systems by
describing their capacity of the process and utilization of cost and profitability of the
orders, products, and customers.
 The process of costing becomes easier with the help of Time-Driven Activity-Based
Costing as it assists the management of the organization in removing activities such as
survey and interviews and makes use of relevant and important information.
 This method is very effective due to its feature of allocation of resource cost directly
to the cost objects.
Difference between TDABC and Activity- Based Costing and Traditional Costing
System
Time-Driven Activity-Based
Costing
Activity Based Costing Traditional Costing
The method which
recognizes the process or
department's capacity and
according to that assigns the
cost of the capacity of
resource groups on the cost
objects depending on the
required time to achieve an
activity is known as Time-
An accounting method which
recognizes the firm’s activity
performed by it and then
allocates indirect costs to
products is known as
Activity Based Costing
(Zeuner, 2012).
The distribution of the
products of factory overhead
is dependent on the volume
of consumed production
resources is known as
traditional costing
(Accounting Tools, 2015).

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Driven Activity-based
Costing (Prado-Prado and
Arca, 2013).
Time-Driven Activity-based
Costing is very much focused
towards the capacity or in
other words it is capacity
sensitive and computes the
cost of standard activity with
the help of standard rates
(Marković and Rakočević,
2014).
Activity-based costing
computes the products,
service or customers actual
cost, by including indirect
costs depending on the
performed activity instead of
volume (Johnson, 2018).
The model of Traditional
costing assigns indirect costs
depending on the volume. It
leads to the overvaluing the
cost of the product with high
volume, whereas the
products become
undervalued which are of
low volume.
Time-Driven Activity-Based
Costing provides companies
a refined and practical choice
for describing their
procedures capacity and cost
consumption and orders
effectiveness, customers, and
products.
Activity-based Costing is
more multifaceted and
precise as compared to
Traditional costing (Simple
Studies, 2016).
Traditional Costing method
is very basic and less precise
as compared to other
methods (Wilkinson, 2013).
Suitability of TDABC for Tata Motors
Time-Driven Activity-based Costing is suitable for the Tata Motors Company in order to
attain the increased productivity at low cost and in less time. Some benefits of the Time

MANAGERIAL ACCOUNTING 8
driven activity-based costing that Tata Motors Company can gain by implementing this
costing in their process are as follows:-
 The Time-Driven Activity-based costing is easy to install in the course, low cost,
flexibility, and system simplicity.
 The managers of the company can take correct decisions and can estimate the quality
of inactive capacity. Hence, the company’s manager who possesses the information of
the person's productivity and the actions can make the basis planning more properly.
 TDABC method is prepared for those companies which have various process sources
and suppliers used in numerous ways, services and products that are created in various
classes and customers who need altered facilities. Therefore, the company like Tata
Motors incline to act in such procedures for receiving true and real information need
to implement Time-Driven Activity-Based Costing.
 TDABC method is considered as the enhanced version of old Activity-based costing
which assists the company in estimating the source demand of every procedure,
customer, and product with the support of necessary time to achieve the actions and
the capacity cost unit time.
 In the old Activity-based costing method first, it is been estimated that how much
time is given by which employee and to which activity after the cooperation of the
staff's member who performs various responsibilities in a company. After that, it is
defined as the overall cost of all the action and dispersed to the customer, service, and
product or depending on the activities (Kaplan and Anderson, 2017). But Time driven
activity-based costing is different because it allocates the company's indirect expenses
based on the working time of every activity. Therefore, it is believed that as the
products and services work through various procedures take dissimilar time, and the
resources are used at various levels. This is the reason; the cost of an employee

MANAGERIAL ACCOUNTING 9
depends on their schedule of working and is distribute services and products (Ayvaz
and Pehlivanli, 2011).
Conclusion
In the conclusion, it has been identified that Time driven Activity-based costing will be
suitable for Tata Motors Company because it saves a lot of time, money and effort of the
management. Along with this, the method is very effective as it helps in increasing the
productivity of the company due to the simplicity of the method and it is also very simple to
install. Time-driven activity-based costing is designed for those companies who have various
departments and with various process or activities. This method will make all the process
smooth and effective which will bring best results for Tata Motors Company. The above
report has provided the detail description of the Tata Motors Company and about the Time
driven activity-based costing. It has also explained the difference between the TDABC
method, ABC method, and traditional costing method.

MANAGERIAL ACCOUNTING 10
References
Accounting Tools, 2015, Traditional Costing, Accessed on: 10 January 2018, Accessed from:
https://www.accountingtools.com/articles/what-is-traditional-costing.html
Anderson, S.R., and Kaplan, R.S., 2017, Time-Driven Activity-Based Costing, Accessed on: 9
January 2018, Accessed from: https://hbswk.hbs.edu/item/time-driven-activity-based-costing
Ayvaz, E., and Pehlivanli, D., 2011, The Use of Time Driven Activity Based Costing and
Analytic Hierarchy Process Method in the Balanced Scorecard Implementation, International
Journal of Business and Management, 6(3), pp. 146-158.
Daniels, P., 2017, Tata Motors to restructure management – Reveals new mission, vision and
values, Accessed on: 10 January 2018, Accessed from: https://www.rushlane.com/tata-
motors-to-restructure-management-12199449.html
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https://www.infoplease.com/encyclopedia/social-sciences-and-the-law/economics-business-
and-labor/businesses-and-occupations/automobile-industry
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costing-33724.html
Kaplan, R.S. and Anderson, S.R., 2017, Time Driven Activity Based Costing, Accessed on: 9
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Marković, A., and Rakočević, S.B., 2014, Proceedings of the xiv international symposium
symorg 2014: new business models and sustainable competitiveness, FON.

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Prado-Prado, J.C., and Arca, J.G., 2013, Annuals of Industrial Engineering 2012: Industrial
Engineering: overcoming the crisis, Springer Science & Business Media.
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