Time-Driven Activity Based Costing (TDABC)

This assignment delves into the concept of Time-Driven Activity Based Costing (TDABC) as a sophisticated costing technique. It examines how TDABC differs from traditional methods, emphasizing its focus on time as a primary driver of cost. The analysis explores the strengths and weaknesses of TDABC, highlighting its suitability for contemporary business environments. Real-world examples are provided to illustrate the practical application of this method. The assignment concludes by discussing the relevance of TDABC in achieving competitive advantage.

Running Head: Business Management 1
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Executive summary:
This report highlights the various aspects of the time-driven activity based costing, and it also
states the suitability of this costing method in the private organizations of Australia. For the
purpose of understanding the suitability, we choose the case study of BHP Billiton. TDABC is
considered as simple method which eliminates the requirement of surveys and interviews for the
purpose of allocating the resources costs to the activities. This model overcomes the
shortcomings of the original model of ABC and assigns the resource costs directly to the costs
object.
Contents

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Introduction:....................................................................................................................................4
About BHP Billiton:........................................................................................................................5
TDABC & its features:....................................................................................................................5
How TDABC is different from ABC & traditional costing systems:..............................................7
TDABC & ABC:..........................................................................................................................7
Traditional costing system & TDABC:.......................................................................................8
Suitability of TDABC for BHP Billiton:.........................................................................................9
Conclusion:....................................................................................................................................11
References:....................................................................................................................................11
Introduction:
Various factors are present which impose pressure on the organizations to provide good services
at lower cost and some of these factors are, increase in demand of digital services, high cost in
context of information, slowdown in economies, etc. For the purpose of dealing with these
conditions, managers of organizations must increase and improve their knowledge of cost
behavior and also understand the involvement of different costs in the organization (Gonzalez,
2014). Time-Driven Activity-Based Costing (TDABC) is the technique of cost management
which helps the organization in developing accurate cost information related to different
activities conducted in the organization. It is necessary to conduct research on the suitability of
the TDABC in private organizations.

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It is very difficult for organizations to implement the traditional model of ABC because this
model includes high cost related to interview and survey of people and it is very difficult to
maintain and update this model because of its complexity level. On the other hand, TDABC
consider only two parameters that are unit cost of supplying capacity and the time required for
performing any transaction and activity (Basuki & Riediensyaf, 2014).
This report defines the suitability of the TDABC in the private organizations of Australia, and for
this purpose we choose BHP Billiton Plc. Structure of this report includes the short description of
the client, detail description of TDABC and its features, difference between TDABC and ABC,
and whether TDABC is suitable for BHP Billiton Plc. Lastly, paper is concluded with brief
conclusion.
About BHP Billiton:
BHP is considered as leading Resource Company of the World. This company mainly engaged
in extracting and processing of minerals, oil and gas. Almost 60000 employees are employed by
the organization, primarily in Australia and USA. Products of the organization are sold
worldwide. Global headquarter of the organization is situated in the Melbourne, Australia. BHP
Billiton conducts its operation under Dual Listed Company structure and it has two parent
companies that are BHP Billiton Limited and BHP Billiton Plc., and this organization is operated
as single economic entity which is referred as BHP. BHP is run by a unified Board and
management.
The main aim of this organization is to create value for long-term shareholders through the
discovery, acquisition, development and marketing of natural resources. For this purpose,
organization develop the strategy, and strategy of this organization includes own and operate

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large assets, long-life, low-cost, expandable, upstream assets diversified by commodity,
geography and market. Operating model of the BHP Billiton allowed the organization to use
their expertise across their business and it shas multifunctional teams which connect all the
hierarchy’s of the organization for best results (BHP, n.d.).
TDABC & its features:
Every business organization needs the management which has clear understanding of the cost
management, and this can only happen with the easy cost accounting model which can quickly
reflect the changes occurred in the business as they occur. It must be noted that TDABC is
completely different from the original activity-based costing (OABC). OABC provides strong
model for costing varied products and services, but TDABC holds more variation and
complexity related to products and services, as it helps the organization by providing information
of high quality without the issues which are created by the OABC models (Kannaiah, 2015).
TDABC is a simple model which can easily, validated, maintained, and expanded. This model is
considered as best costing technique for present environment of the business. This model mainly
considers two parameters, and both the parameters are stated below:
 Unit cost related to supplying capacity of the organization.
 Required time for the purpose of performing an activity.
Capacity cost rate estimate- this model is initiated by identifying different groups of resources
performing activities. It must be noted that capacity of resources is measured by using time
availability, but some organizations also use the time-driven approach for the purpose of

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determining the capacity of resources measured in other units. The formula for calculating the
capacity cost rate is stated below:
Capacity cost rate- Cost of capacity supplied/ practical capacity of resources supplied.
Unit Time estimate- this approach requires the organization to estimate the time needed to
perform any transactional activity. Generally, estimations of time will be estimated either by
directly observing the things or by conducting the interviews. Under this approach it is not
necessary to estimate the exact time, roughly estimation of the time is sufficient.
It must be noted that TDABC ensures following positive features:
 It is an easy procedure, and organizations can implement it quickly.
 This model easily integrates with the data, and now available through the installation of
ERP and CRM systems.
 It is not expensive in nature, and organization can maintains and update it quickly.
 This model has skill to measure to enterprise-wise models.
 It is very simple to incorporate additional features in this model related to specific orders,
processes, suppliers, customers, etc.
 More visibility related to efficiencies of process and utilization of capacity.
 This model also has skill to forecast the resource demands for future, and this forecasting
is clearly based on the predicted quantity of the order and complexity.
These above stated features help the ABC model to improve its efficiency and remove its
deficiencies such as complex in nature, expensive financial system, etc (Kaplan, 2009).

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How TDABC is different from ABC & traditional costing systems:
Additional features of TDABC help the organizations in many ways but this technique is
different from original model of ABC and from other traditional costing techniques also.
Difference between these three is stated below in detail.
TDABC & ABC:
Activity based costing is considered as accurate way for managers for the purpose of distributing
costs to the consumers and products related to the services of departments. However, this model
of costing loose its efficiency in large scale operations and other disadvantages are also there
such as this model is expensive in nature and difficult to maintain. Abandon of ABC model is the
not the right solution for this problem, because this model represents huge potential for
companies on larger scale. Fortunately, this model becomes simpler because of the new approach
known as time-driven ABC which overcomes from all these shortcomings.
The major difference between these two models is stated below:
TDABC ABC
It is not an expensive system. It is an expensive costing method.
East to operate Complex in nature
It uses duration cost drivers It uses transaction cost drivers (Simple Studies,
2016).
Traditional costing system & TDABC:
In case traditional costing methods indirect cost was applied to the products and this is based on
predetermined overhead rate. This type of costing methods considers the overhead costs as a

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single group related to indirect costs. These types of methods are finest in nature only if indirect
costs are low in comparison of direct costs. Traditional costing methods include various
parameters such as first it identify indirect cost, estimation of indirect cost for particular period,
select cost driver with the casual link to the cost, estimate the amount of the cost driver for
particular period of time, compute the preset overhead rate, and lastly applied the overhead to the
products by using the preset overhead rate (Johnson, 2018)
On the other hand, TDABC is the simple model which mainly identified the capacity of each
department or process. Subsequently, cost is allocated on the basis of the capacity of the
resources groups over the cost object which is mainly depend on the required time for the
purpose of performing an activity. In case demand or work related to these departments
decreases, then it is possible for TDABC to estimate the quantity related to resources released. In
other words, TDABC captures the different characteristics of an activity on the basis of time
equations under which time consumed by any activity is considered as function of different
characteristics. This model is considered as best costing technique for present environment of the
business. This model mainly considers two parameters, and both the parameters are unit cost
related to supplying capacity of the organization and required time for the purpose of performing
an activity (Kuchta & Troska, 2007). Difference between the two is sated below:
Traditional methods of costing TDABC
It use indirect cost related to the activity. It mainly identifies the capacity of each
department and activity.
It uses various parameters for determining the
cost.
It only uses two parameters to determine the
cost.
It is suitable only when indirect cost is low in It is suitable in every situation (Kaplan, 2006)

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comparison of direct cost.
Suitability of TDABC for BHP Billiton:
Annual report of BHP Billiton 2017 states that cost pressures occurred in complete resource
industry, and the prices of the products are determined on the basis of commodity markets at
global level. Generally, organizations do not have ability to offset these pressures related to cost
through increase in the price and this adversely affects the productivity of the organization.
Management of BHP made efforts to decrease the costs, but almost all the key costs inputs are
linked and it unable the organization in reducing the cost and time lag. All this issues impact the
operating margins of the company for an extended period of time.
Various assets of the organization such as those assets which produce copper are energy or water
intensive because of which cost and earnings of the BHP would be affected in adverse manner by
increase in cost and other interruptions related to supply. Some other reasons are also there
which such as energy, fuel, and water was not available because of the different number of
reasons such as changes occurred in climate, inadequate infrastructure capacity, interruptions in
supply, etc (BHP, 2017).
However, it must be noted that BHP can deal with all these issues by adopting time-driven
activity-based costing system as it helps the organization in improving their resource capacity
and allocation of resources in adequate manner. Following are the reasons because of which
TDABC is suitable for BHP:
 It removes the requirement for the time consuming, subjective, interview-and-survey
process for the purpose of defined resources pools.

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 TDABC ensures accurate accounts for the purpose of dealing with the complexities of
business transaction by using the time equations. This process states the accurate time for
needed for particular activity and also eliminate the requirement to track the multiple
activities because it accounts the different costs related to single activity.
 This model reduce the processing time needed for go through the data and this can be
done by using feeds related to data from ERP systems.
 This system is very easy to maintain and update such as by using the ERP systems they
can easily update the capacity cost rates.
Bu using the traditional costing techniques, BHP overestimates the cost required for performing
the activities because of which capacity usage of the organization is reduced. TDABC helps the
BHP in simplify the various steps related to the costing technique. It must be noted that BHP
requires effective ERP system for the purpose of implementing the TDABC successfully.
Conclusion:
After considering the above facts, it can be said that TDABC is the modern form of ABC which
is suitable for the private organizations as well. This system helps the organization in conducting
their activities well planned and in well manner. It also reduces the risk of uncertainty.
TDABC is the simple model which mainly identified the capacity of each department or process.
Subsequently, cost is allocated on the basis of the capacity of the resources groups over the cost
object which is mainly depend on the required time for the purpose of performing an activity.
This model is considered as best costing technique for present environment of the business.

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References:
Basuki, B. & Riediensyaf, M. (2014). The Application of Time-Driven Activity-Based Costing
In the Hospitality Industry: An Exploratory Case Study. JAMAR, Volume 12(1).
BHP, (2017). BHP Annual report 2017. Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf. Accessed on 11th January 2018.
BHP. About Us. Available at: https://www.bhp.com/our-approach/our-company/about-us.
Accessed on 11th January 2018.
Gonzalez, M. (2014). Time-Driven Activity-Based Costing for Healthcare Provider Supply
Chain Processes. Available at: http://scholarworks.uark.edu/cgi/viewcontent.cgi?
article=3843&context=etd. Accessed on 11th January 2018.
HBS, (2005). Rethinking Activity-Based Costing. Available at:
https://hbswk.hbs.edu/item/rethinking-activity-based-costing. Accessed on 11th January 2018.
Johnson, R. (2018). Traditional Costing Vs. Activity-Based Costing. Available at:
http://smallbusiness.chron.com/traditional-costing-vs-activitybased-costing-33724.html.
Accessed on 11th January 2018.
Kannaiah, D. (2015). Activity Based Costing (ABC): Is It a Tool for Company to Achieve
Competitive Advantage?. Available at:
https://researchonline.jcu.edu.au/41020/1/41020%20Kannaiah%202015.pdf. Accessed on 11th
January 2018.

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Kaplan R. (2006). The competitive advantage of management accounting. J Manage Account
Res 18:127–135.
Kaplan, R. (2009). Time-Driven Activity Based Costing. Available at:
http://accounting.teicm.gr/userfiles/files/%CE%9C%CE%95%CE%A4%CE%91%CE%A0%CE
%A4%CE%A5%CE%A7%CE%99%CE%91%CE%9A%CE%9F%202015%202016/ABC.pdf.
Accessed on 11th January 2018.
Kuchta, D. & Troska M. (2007). Activity based costing and customer profitability. Cost Manage
21(3):18–25.
Simple Studies, (2016). A different approach to activity-based costing (ABC). Available at:
http://simplestudies.com/different_approach_to_activity_based_costing_abc.html/page/2.
Accessed on 11th January 2018.