Activity-Based Costing Analysis and Applications

This assignment focuses on Activity-Based Costing (ABC), a widely used cost accounting method. It requires students to understand the fundamental concepts of ABC, its benefits over traditional costing methods, and its implementation process. The assignment also prompts exploration of real-world applications of ABC in diverse industries like manufacturing, services, and construction, highlighting its role in informed decision-making and improved cost control.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Introduction................................................................................................................................2
Description of the Clients firm:..................................................................................................2
Description of the Time-Driven Activity Based Costing and its features:................................3
Difference between TDABC, ABC and Traditional costing system:........................................4
Description of whether the TDABC is appropriate for Client company:..................................7
Conclusion:................................................................................................................................8
Reference List:...........................................................................................................................9

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Introduction
In the modern world of business notwithstanding the size whether the firm is big or
small it needs that there should be a clear understanding of the managers regarding the cost. It
is necessary to have an understanding of the methods of costing as they would be better able
to locate the changes taking place in the trade whenever they originate (Hemmer and Labro
2016). The present study takes into the considerations the TDABC along with the
understanding of the essential features. The report will further focus on the ways which will
determine the methods under which the TDABC is different from the ABC model costing and
the Traditional methods of ABC costing. The study will further assess the costing system
regarding the implementation of the model in the Adelaide Brighton Ltd.
Description of the Clients firm:
The Adelaide Brighton is regarded as the Australia’s leading company that is engaged
in the construction of the materials and in the areas of lime manufacturing. Adelaide Brighton
Ltd is concerned with the manufacturing and the supplies of wide range of goods that is
associated with the construction of the infrastructure, processing of building materials
throughout the territories of Australia (Adbri.com.au 2018). The chief activities of the firm
included manufacturing, importation and delivery of the lime goods, cement, concrete goods
and premixed concrete. Adelaide Brighton has large base of operational facilities that
prompted the supply of materials to the customers and facilitated a well-organized production
capacity in order to meet the demands of the customers throughout the country. This enabled
the organization to provide the supply of the packaged materials and the supply of the
logistics throughout the regions of Australia and Asia.

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Description of the Time-Driven Activity Based Costing and its features:
The Activity based methodology of costing is current viewed as the complete method
of costing however the model suffers from wide known amount of criticism for the approach
undertaken with several such users of the ABC costing have stopped using this method
(Prasad 2014). The actual process of ABC costing offers a superior system of costing the
variety of products and service however under the new model of Time Driven Activity Based
Costing method will have the ability of incorporating the large amount of variations and
complications by offering the improved quality of information minus the restrictions linked
with the scheme of ABC costing.
The customers of modern day largely place their focus on the business discoveries by
generating and offering the wide range of products which largely offer their support to the big
order entry and channels of tracking the order at numerous level of technical support.
According to the words of Velasquez, Suomala and Järvenpää (2015), there is an increase in
the total number of customers. These customers require an appropriate management of
customers data along with the administration of profit generated by them.
The ABC method of costing has attracted the attention of distinguished costing
methodology among the products that ranges from upper limit, custom and standard products
(Hald and Thrane 2016). The system of TDABC helps in offering better information
concerning the earnings and the frequency of profits by demonstrating the differences in the
cost among the consumers that are having lower demand and ease of service than those that
are having higher demand with complex customer preferences.
Depending upon the time needed in performing the activity the method of TDABC is
better able to recognize the sum of every unit or procedure together with the allocation of cost
to the resource group. As stated by Lanen (2016), it is noted that the demand for TDABC can

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guess the amount of resources that are released. The TDABC method of costing is able to
capture the different feature of activity through time equation that takes time as per the
activity and TDABC is observed as the function of diverse features. The below stated are the
feature of the Time Driven Activity Based Costing;
a. The primary feature of TDABC costing is very easy to understand and makes the
model accurate.
b. The model of TDABC integrates in an efficient way with the information that is
available from the ERP and the customer relationship management that makes the
system of TDABC vibrant (Cooper 2017).
c. Time Driven Activity Based Costing method drives the cost into the transaction and
orders thorough processing of orders, customers and materials.
d. Another feature of TDABC is that it runs on monthly basis to record the economies of
current business functions.
e. The model of TDABC helps in offering visibility during the processing of utilization
capacity.
f. The model of TDABC is helpful in predicting the demand of resources. This would
enable the organization in making the budget for the resource capacity in respect of
the anticipated capacity of order and complication.
Difference between TDABC, ABC and Traditional costing system:
In the present situation the system of TDABC helps in offering variations of the ABC
model because it enables easy execution of the functions that is needed to manufacture goods
and service that are sold in the market (Otley 2016). The traditional system of costing
distributes the product overhead in relation with the capacity of the cost driver, namely the
direct labour hours that is needed to manufacture the product.

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A noteworthy element that causes the cost to take place is cost driver such as the
machine hours, direct labour hours and direct material hours involved in manufacturing
product. Under ABC method of costing, cost occurred in manufacturing the product is
allocated for the activities that is necessary to manufacture the item. On the other hand, the
model of TDABC helps in easy measurement of the product effectiveness involved in
manufacturing the product at given level of available capacity against the consumption
capacity (Cooper, Ezzamel and Qu 2017). Arguably the cost equation helps in providing less
costly system than the traditional method of ABC costing.
The Time Driven Activity Based Costing system is regarded as more economically
and reasonably efficient than the ABC method of costing. The prime reason for this is that the
method simplifies the method of costing and reduces the instances of surveys that are used in
ABC method of costing (Mahal and Hossain 2015). The TDABC helps in distributing the
cost directly to the cost units. The model of traditional absorption costing helps in distributing
the costs generated from the resources through using the capacity cost to ascertain the
requirement of resources for each unit of cost.
According to the words of Onat, Anitsal and Anitsal (2014), the model of Time driven
activity based costing system only needs time projections to process the orders of customers
and it is not mandatory that the cost should be equal. This is due to the fact that the TDABC
helps in projecting numerous times depending on the features of application by using the
imitation of variables and equations. Whereas in ABC costing method the amount of cost
drivers is used in allocating the cost to every department of cost object. Under the TDABC
consumptions of resources by the cost activities is not considered and it is not obligatory to
distribute this cost. The below stated table provides differences between the TDABC, ABC
and Traditional ABC;

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ABC Traditional ABC Time Driven Activity Based
Costing
Under the ABC method of
costing numerous activities
of overheads are identified
The traditional method of
costing helps in allocating
the overhead cost to every
unit produced.
The Time driven activity
based costing method helps
in identifying the numerous
groups of resources
The method of ABC helps in
allocating the overhead cost
to numerous activities
through the help of resource
driver
The model assumes the
situations where the matrix
of quantity turns into the
driver of product overhead.
Projects the sum of overall
cost for every resource
groups
The ABC method of costing
recognizes the cost driver
for each of the activities
In the traditional method of
costing the managers
allocate the cost of
productions only to the
products (Lee et al. 2015).
Determines the practical
ability of every resource
group particularly the
available working hours and
training hours.
The ABC method
determines the cost driver
for every activity by
dividing the total amount of
cost activity from the
practical amount of activity
driver.
The system of traditional
accounting is not capable of
distributing the non-
manufacturing cost
associated with the
production of the item
particularly the management
expenditure.
The method computes the
cost of each unit of resource
group by dividing the
amount of cost to each unit
of the group through
practical capacity.

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Description of whether the TDABC is appropriate for Client company:
Applying the model of time driven activity based costing in the client firm of
Adelaide Brighton Ltd it can be stated that the model is ideally simple to understand and
apply. Additionally, the model is economical and effective than the other models such as the
ABC and Traditional ABC. The time driven activity based costing helps in making the
costing system easy by eliminating the need of survey and interview of employees (Ahmed
and Kannaiah 2016).
The traditional method of costing would help Adelaide Brighton Ltd in distributing
the cost of resources to the activities prior to driving them to the cost objects. An important
consideration that can be drawn from the analysis is that the mechanism of TDABC would
help Adelaide Brighton Ltd in distributing the resources directly to the objects of cost by
using the smart set of framework in estimating the profit. The model is helpful in computing
the cost that is needed in the supply of resource capacity (Monroy, Nasiri and Peláez 2014).
For example, the processing department of the Adelaide Brighton Ltd on implementing the
model of TDABC would be able to ascertain the cost used in resources, technology and
supervision.
The TDABC makes the use of cost capacity rate in ascertaining the departmental
resource cost in the cost unit by ascertaining the demand for the resource capacity required by
each cost objects (Öker and Adıgüzel 2016). Considering the example of customer order
subdivision, the model of time driven activity based costing would help Adelaide Brighton
Ltd in estimating the time needed in processing the customer orders.
The time driven activity based costing assist in stimulating the original process that is
used in performing the work for Adelaide Brighton Ltd. The time driven activity based
costing would help Adelaide Brighton Ltd in capturing wide number of variations than the

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conventional model of ABC without creating any demand for data projections, storage and
processing of materials (Geiszler, Baker and Lippitt 2017). Adelaide Brighton Ltd on
implementing the TDABC will be able to sustain the difficulties instead of using the
inaccurate model of ABC for its business activities.
The model of TDABC would help Adelaide Brighton Ltd in projecting the cost object
with the ease and in terms of quantity for each unit of the transactions that is processed in the
department. As stated by Hoozée, and Hansen (2014) there are evidences of several
companies that uses the ERP system for storing the data and these data ranges from
packaging and delivery method. In respect of the Adelaide Brighton Ltd implementing the
model of TDABC would help the company in storing the complex business information in an
effective manner for transactions that are fluctuating in nature. As evident in the case of
Adelaide Brighton Ltd the TDABC would help in improving the complexity of time equation.
Consequently, the TDABC model would help Adelaide Brighton Ltd in capturing more
number of variations without creating the exploding demand for estimates of data, storage
and processing capabilities.
Conclusion:
On arriving at the conclusion, the report has exclusively presented that by using the
TDABC an organization like Adelaide Brighton Ltd would be able to embrace the
complexity instead of being forced to use the simplified and inaccurate model of ABC. The
model would enable the company to avoid the costly, time consuming and subjective activity
of the conventional ABC. The TDABC model at the initial stages estimates the historical data
however its central power is to help in predicting the future. Systematically the TDABC
would assist the managers in overcoming the problems of incorporating the data is ERP and
CRM system.

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Reference List:
Adbri.com.au. (2018). Adelaide Brighton, Australian construction and lime group of
companies.. [online] Available at: http://adbri.com.au/ [Accessed 9 Jan. 2018].
Ahmed, R. and Kannaiah, D., 2016. The considerations for the implementation of an Activity
Based Costing System (ABC).
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Geiszler, M., Baker, K. and Lippitt, J., 2017. Variable Activity‐Based Costing and Decision
Making. Journal of Corporate Accounting & Finance, 28(5), pp.45-52.
Hald, K.S. and Thrane, S., 2016. Management Accounting and Supply Chain Strategy. In 1st
International Competitiveness Management Conference.
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.
Lanen, W., 2016. Fundamentals of cost accounting. McGraw-Hill Higher Education.
Lee, J., Park, M., Lee, H.S., Lee, K.P. and Hyun, H., 2015. Application of Activity-Based
costing (ABC) for Modular Building Construction Indirect Costs Calculation at the
Manufacturing Stage. Korean Journal of Construction Engineering and Management, 16(4),
pp.139-145.