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Activity-Based Costing in TPG Telecom

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Added on  2020/05/16

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This assignment tasks you with analyzing the implementation of Time-Driven Activity-Based Costing (TDABC) at TPG Telecom, a prominent telecommunications company in Australia. You'll explore how TDABC can be applied to accurately allocate costs across different product lines and services offered by TPG. The analysis should delve into the benefits and challenges associated with implementing TDABC within the context of TPG's operations, considering factors like cost transparency, decision-making improvements, and potential complexities in data collection and system integration.

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Running head: APPLICABILITY OF TDABC
Applicability of TDABC
Name of the Student
Name of the University
Author’s Note

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1APPLICABILITY OF TDABC
Executive Summary
Cost accounting, popularly referred, as costing is the mechanism of capturing organizations
incurred cost in production. This identifies cost incurred in different steps of production. Costing
of an organization can primarily be divided into three sections that are direct costing, indirect
costing, and overhead costing. Accountants in a business organization can use various costing
methods for accounting these costs. However, TDABC is primary focused in this report and the
features of this system is highlighted. The report further identifies the difference between
TDABC, ABC, and traditional costing, which identified the efficiency of TDABC greater than
the rest. The report further relates TDABC with TPG Telecommunication limited for
identification of the applicability of the particular costing system in the organization.
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2APPLICABILITY OF TDABC
Contents
Executive Summary.......................................................................................................................1
Introduction......................................................................................................................................3
Organisation Background................................................................................................................3
About TDABC.................................................................................................................................4
Features of TDABC.........................................................................................................................5
Difference between TDABC, Active Based Costing and Traditional Costing...............................6
Applicability of TDABC on TPG Telecom.....................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11
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3APPLICABILITY OF TDABC
Introduction
Cost accounting, popularly referred, as costing is the mechanism of capturing
organizationsincurred cost in production. This identifies cost incurred in different steps of
production (Schaltegger and Zvezdov 2015). This further includes the costs incurred in other
activities of the organization, which includes services. Costing of an organisation can primarily
be divided into three sections that are direct costing, indirect costing, and overhead costing
(Zuberbieret al 2014). Costs incurred by the company, which can be related to a specific cost
object are referred as direct costing. Some example of this cost products can be product, raw
material, equipments departments etc. (Carli and Canavari 2013). Indirect cost the other hand is
beyond the direct cost and does not supplement in production of any goods. Thiscost incurred is
related to the services being provided by the company. Example of this type of costing can be
telephone bill, house rent etc. that are indirectly by the company or maintaining their operation.
Overhead cost and indirect cost are interred and overlapping. This is the ongoing expense of
operating business (Drury 2013). Accountants in a business organisation can use various costing
methods for accounting their costs. These methods are traditional costing, activity based costing
and time driven activity based costing. These methods of costing are implemented in a bushiness
organisation depending on the nature of the business.
Organisation Background
TPG Telecommunication Limited is Australia’s leading telecommunication service
provider both within and outside the domestic boundary. The company was established in 1986as
Total Peripheral Group in the Australian market (tpg.com.au. 2018). They later expanded outside
of the Australian boundariesand acquired many small telecommunication providers such as

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4APPLICABILITY OF TDABC
IntraPower, iiNet, PIPE Networks and some over their venture over time. The companybecame
4th mobile operation in the Singapore marketin2016 (tpg.com.au 2018). The company has
positioned themselves as fast, reliable cost effective communication service providers in the
market. They attribute the people, products, network assets and innovation as the driving factor
in the organization for attaining this position in the market.
The company in their product portfolio provides a wide range of products to their diverse
customers. They offer different products for the personal use, small business organisations, large
corporate enterprises, and wholesale customers according to the need of individual customers
(tpg.com.au2018). The products and services offered by the company for their diversified range
of customers are ADSL2+, NBN,FibreOptic andEnternet broadband access, telephony services,
Internet Protocol Television, SIM only Mobile plans andvarious business networking solutions.
The company has established a self-owned end-to-end network infrastructure. This icorporaates
400 DSLAM enabled telephone exchanges across Australia, extensive metropolitan an inter-
capital fibre optic networks and international PPC-1 submarine cable that connects Australia and
Guam with onwards connectivity to Asia and USA (tpg.com.au2018). The ownership of carrier
grade voice, data andinternet network infrastructure and self-maintenance makes them capable of
delivering exceptional performance across different level of the organisation. This further
facilitates them in taking responsibility in the services offered to the customers.The self-owned
infrastructure further enables them to enjoy greater profit margin while providinglow
costservices totheircustomers.
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5APPLICABILITY OF TDABC
About TDABC
Popular costing method activity based costing, which is widely incorporated by various
organisations is the proposer of Time-driven Activity based costing. Failure of activity based
costing is gave birth to the modified version of costing mechanism. TDABC can be considered
as the modified version of ABC, which focuses on time instead of activity of an operation.
Kaplan and Anderson developed TDABC, which potentially decreases the amount of data
needed (Kaplanet al 2014). The costing method has minimizes the parameter into two and
requires estimating of the two factors that are cost time per unit of capacity and unit time of
activities.
The first approach involves estimation of the practical capacity of the resources supplied
as a percentage of theoretical capacity. In other words, this helps the managersin identification of
actual time given by individual employee in the organization (Au and Rudmik 2013). It identifies
the gap between the actual and the theoretical time allotted for a particular task, and later
identifies the resource utilized for the identified time.
After estimating the overall time required per activity and it is costing, the unit time per
activity helps in identification of time taken for performing per activity (Au and Rudmik 2013).
This helps in identifying the actual time taken for performing a particular activity by the
employee.
Features of TDABC
The primary features that increases the efficiency of Time-Driven Activity-Based Costing
are as follows:
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6APPLICABILITY OF TDABC
It reduces the time consumed in the process of costing by removing the need of
subjective, interview and survey process for defining the resource process. The only
variable used in TDABC is time, which can be gain using direct observation method,
hence, making other lengthy processes irrelevant.
It uses time equation in accounting the complexity in business process that reflects the
time consumed for particular task. This further eliminates the need for multiple tracking
activity in accounting.
Reduces the processing time that was necessary for undergoing data review from the ERP
system.
Maintenance and update of capital cost rates and unit time estimation is easier in
TDABC. This became possible using time equation.
The time unit provide greater accuracy in representation of capacity compared to the
traditional Activity-Based Costing. ABC method tends to represent overestimation of the
cost of performing activities, which results into less accuracy in capital usage.
Other benefits of using TDABC is that it helps eliminating the monthly personal survey
and multitude transaction processing that was both time consuming and hectic for an
accountant (Stout and Propri 2011).
Difference between TDABC, Active Based Costing and Traditional Costing
Traditional costing, Activity Based costing and Time Driven Activity Based Costing
serves the same purpose in business accounting, however, largely varies from each other in the
process. These methods are used for allocating indirect costs to products. These different
methods of costing are used for estimating the overhead cost of a production and in assigning the
costs to products based on the cost-driver rate. According to Mahaland Hossain (2015) the

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7APPLICABILITY OF TDABC
traditional costing is simple in nature and provides less accurate data, while compared to Activity
based costing and time driven activity based costing. Traditional costing assigns overhead costs
to products depending on the arbitrary average rate. Whereas, ABC costing is comparatively
complex and considered to provided greater accuracy as identified by Rundora, Ziemerink and
Oberholzer(2013), which relates indirect cost with the activities and later assigns them to
products after evaluation of the products’ usage of the activity. TDABC on the other hand relates
the costing with the time consumed for the activity. Time consumed per activity helps in
identification of the costing per unit. This is considered to provide greatest accuracy in the
costing process as proposed by Öker and Adıgüzel(2016) and helps reducing the complexity of
the ABC system.
Traditional Costing – Traditional costing as narrated by Drury (2013) relate cost to product
basing on the predetermined overhead cost. The overhead cost in traditional costing is treated as
a single pool of indirect cost. This costing system is considered optimal when direct cost is
greater than indirect cost. The traditional costing system being oldest of the three incorporates
multiple steps in the costing process. They are:
Identification of the indirect cost incurred by the organization
Estimation of the indirect costs over a particular period
Selection of cost driver with a casual link to the cost
Estimation of the amount required for the cost driver for the particular period
Calculation of the predetermined overhead rate
Application of overhead to the products according to the predetermined overhead rate.
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8APPLICABILITY OF TDABC
Predetermined overhead rate is considered equal to the estimated overhead cost divided
by the estimated cost driver amount. The primary benefits of traditional costing as stated by
Drury (2013) are the simplicity and easier applicability. However, the limitation of the system in
providing accurate information reduces its applicability in business organization.
Activity Based Costing –ABC on the other hand as stated by Estampeet al (2013) prioritizes
activities associated with production before assigning cost to the activities for determining the
cost of the product. The steps involved in ABC system are:
Identifies the activities associated in the production and groups together in the activity
pool
Further analysis of the activities involved for eliminating the systematic inaccuracy
Next step involves the cost assignment to the activity pool depending on the derived data
from the former steps
Calculation of the activity rate is the analysis of the activity in terms of real value. Each
of the activities are put under currency value for identification of the overhead costing
This step of ABC system assigns cost to the final product depending on the cost
calculated over activity, pools, and rates.
Final step is to evaluate the conciseness and coherence of the object cost.
Time-Driven Activity-Based Costing – This costing system focuses on time placing the activity
in the second position in the importance chart. The primary concern is to prepare accurate time
based algorithm that helps in cost identification (Ozyurek and Dinç 2014). The process involves:
Estimation of the cost per unit of capacity
Estimation of unit time per activity
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9APPLICABILITY OF TDABC
Deriving cost-driver rate depending on the above identification
Cost assignment for the final product
Applicability of TDABC on TPG Telecom
The ABC model that is currently used by a large number of organization produces large
amount of data of activities and drivers. This is both expensive and storage consuming, which
requires greater hardware and software capacities (Damjanovski 2013). In addition,
implementation of ABC system potentially increases costing of the company. The TDABC will
considerably reduce the cost and consume less capacity in TPG telecommunication’s hardware
and software.
Besides the fact, the ABC is incompatible in constant updates for accommodating
changing circumstances (Damjanovski 2013). TDABC on the other hand provides the company
an opportunity to accommodate the change as it is necessary to operate in the international
market with this wide range of product line as offered by TPG.
The proposed TDABC method marks out the idle capacity of the resources and removes
its integration in the costing, in which the tradition ABC system fails. However, this is not
applicable for TPG as they do not suffer of considerable over-size or idle working time of the
network equipment due to the nature of the industry it belongs (Damjanovski 2013). However,
there is some variation regarding the traffic-basedutilization of specific switches and base
stations in the telecommunication network. However, this situation is considered as normal in the
industry and shall not be considered as unused capacity. However, TDABC can be implemented
in case of headcount of the company.

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10APPLICABILITY OF TDABC
The traditional ABC system has the potential to work in the local level minimizing its
applicability in the wider section (Damjanovski 2013). Size of TPG provides opportunity for the
implementation of TDABC. Moreover, TPG being international organization requires TDABC
for addressing their global operations.
Reviewing the above aspects, the necessity for implementing TDABC in TPG is limited
and the company can gain limited advantage in using TDABC. Though, this will help the
company save significant cost incurred from implementing ABC and will also provide efficiency
accounting their international business. Hence, implementation of TDABC will be beneficial for
the company.
Conclusion
It is possible to draw conclusion from the above discussion that the efficiency of TDABC
is greater compared to the other costing system discussed in the report. TDABC provides greater
accuracy regarding the data due to the use of time unit and time equation in identification of the
possible overhead cost. Moreover, this costing system found to be less time consuming
compared to ABC system that integrates multiple number of process in determination of
overhead cost. TDABC helps the organizations reducing time of costing by eliminating the steps
used in ABC system.
The report further identifies its greater efficiency in the manufacturing industry. It is
easier to identify the overhead costing in the manufacturing industry due to the clear visibility of
the production process and the nature of the product being delivered to the customers. However,
this becomes difficult in implementing the costing system in service industry similar to the one
of TPG Telecommunication as the production process and the tangibility of the products is less
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11APPLICABILITY OF TDABC
in the field. Though implementation of TDABC will bring limited benefits for the company, it
has potential benefits in the saving cost for the company and help accounting for their widely
spread international business.
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12APPLICABILITY OF TDABC
Reference
Au, J. and Rudmik, L., 2013. Cost of outpatient endoscopic sinus surgery from the perspective of
the Canadian government: a timedriven activitybased costing approach. In International forum
of allergy & rhinology (Vol. 3, No. 9, pp. 748-754).
Carli, G. and Canavari, M., 2013. Introducing direct costing and activity based costing in a farm
management system: A conceptual model. Procedia Technology, 8, pp.397-405.
Damjanovski, S., 2013. Applicability of Activity-based Costing and Related Management Tools:
The Case of IPKO Telecommunications LLC: Master's Thesis (Doctoral dissertation, S.
Damjanovski).
Drury, C.M., 2013. Management and cost accounting. Springer.
Estampe, D., Lamouri, S., Paris, J.L. and Brahim-Djelloul, S., 2013. A framework for analysing
supply chain performance evaluation models. International Journal of Production
Economics, 142(2), pp.247-258.
Kaplan, R.S., Witkowski, M., Abbott, M., Guzman, A.B., Higgins, L.D., Meara, J.G., Padden,
E., Shah, A.S., Waters, P., Weidemeier, M. and Wertheimer, S., 2014. Using TimeDriven
ActivityBased Costing to Identify Value Improvement Opportunities in Healthcare. Journal of
Healthcare Management, 59(6), pp.399-413.
Mahal, I. and Hossain, M.A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.

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13APPLICABILITY OF TDABC
Öker, F. and Adıgüzel, H., 2016. Timedriven activitybased costing: An implementation in a
manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.
Ozyurek, H. and Dinç, Y., 2014. Time-Driven Activity Based Costing. International Journal of
Business and Management Studies, 6(1), pp.97-117.
Rundora, R., Ziemerink, T. and Oberholzer, M., 2013. Activity-based costing in small
manufacturing firms: South African study. Journal of Applied Business Research, 29(2), p.485.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production, 108, pp.1333-1341.
Stout, D.E. and Propri, J.M., 2011. Implementing time-driven activity-based costing at a
medium-sized electronics company. Management Accounting Quarterly, 12(3), p.1.
tpg.com.au. 2018. About TPG - Company Profile. [online] Available at:
https://www.tpg.com.au/about/profile.php [Accessed 21 Jan. 2018].
tpg.com.au. 2018. TPG product list for residential and business customers. [online] Available at:
https://www.tpg.com.au/products [Accessed 21 Jan. 2018].
Zuberbier, T., Lötvall, J., Simoens, S., Subramanian, S.V. and Church, M.K., 2014. Economic
burden of inadequate management of allergic diseases in the European Union: a GA2LEN
review. Allergy, 69(10), pp.1275-1279.
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