Cost and Management Accounting Report: Texas Instruments

This report provides an in-depth analysis of cost and management accounting tools, with a particular emphasis on the Activity Based Costing (ABC) system and its practical application within Texas Instruments Inc. The report begins with an executive summary and an introduction to various cost accounting methods, including standard costing, budget and variance analysis, marginal costing, volume-based costing, and ABC. It then provides an overview of Texas Instruments Inc., detailing its operations in designing, developing, and selling analog and embedded semiconductor chips. The core of the report focuses on the concept of the ABC system, its advantages, and its implementation within the manufacturing processes of Texas Instruments, which include designing, engineering, machining, testing, and order processing. The report outlines the process of implementing ABC, including identifying cost drivers and allocating overhead costs to different departments. The conclusion summarizes the effectiveness of the ABC system and offers recommendations for its successful implementation, supported by references to relevant literature and online resources.

Running head: COST AND MANAGEMENT ACCOUNTING
Cost and Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

1COST AND MANAGEMENT ACCOUNTING
Executive Summary:
This report aims at analyzing the method of various cost accounting tools and its effective use in
practice to manage cost effectively and efficiently. Activity bases costing system is such an
emerging cost accounting tool which can be implemented to allocate the variable costs to various
products or production units. For better and practical understanding of the topic, Texas
Instruments Inc has been selected. Lastly, some recommendations have been made for successful
implementation of the AVC system.

2COST AND MANAGEMENT ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................3
Overview of the Company:..............................................................................................................3
Concept of Activity Based Costing System:...................................................................................3
Cost and benefits of ABC System:..................................................................................................4
Manufacturing process of Texas Instruments Inc:...........................................................................4
Process of implementing Activity based costing system in Texas Instrument Inc:........................5
Conclusion and recommendation:...................................................................................................6
References and bibliography:..........................................................................................................7

3COST AND MANAGEMENT ACCOUNTING
Introduction:
There are various cost and management accounting tools and systems, which can help an
organization to manage their costs efficiently, such as Standard Costing, Budget and variance
analysis, Marginal costing, Volume based costing and Activity Based Costing system. Activity
based costing system is a modern and superior costing techniques which allocated and distributes
the overhead costs to various products or cost centers based on certain activities which drives the
overhead costs.
Overview of the Company:
Texas Instruments Inc is a renowned Technologies company based on Texas, United
States. They design and develop analog and embedded semiconductor chips and electronic
circuits and sell them to various technology companies globally. Their flexible manufacturing
strategy helps them to design and manufacture improved and innovative electronic circuits to
offer improved products to their customers (ti.com, 2019).
Concept of Activity Based Costing System:
Direct costs are directly allocated to the production units and products, only the problem
is with allocation and absorption of indirect costs or the overheads. Some of the companies use a
volume based or traditional system to allocate the costs based on a single overhead rate, which is
not rational as various overhead costs depend on different activity. To eliminate those
disadvantages of traditional or volume based costing system, Activity based costing system
determines various cost driver rates based on different activities and respective costs, then it

4COST AND MANAGEMENT ACCOUNTING
allocates the overhead costs based on usage of different activities in every department (Cooper,
2017).
Cost and benefits of ABC System:
ABC system is a scientific and logical tool of cost and management accounting, it
requires additional effort and proper knowledge of costing to implement successfully in a
manufacturing organization. On the other hand, it allocates the overhead costs efficiently and
logically, to the cost centers and production units. It helps in determining the cost of each goods
manufactured logically and determine the sales price (Cooper, 2017).
Manufacturing process of Texas Instruments Inc:
Texas Instruments Inc manufactures semiconductor chips and electronic circuits. It
requires research and development, designing, machining, manufacturing and testing activities.
Semiconductors are invented through research and development, and then it is designed as per
the customers’ needs, and manufactured through machining, at last it is tested before packaging
and supplying. Therefore, the whole manufacturing process passes through various activities and
there are various indirect costs associated with each of those activities. Various direct costs such
as direct materials and direct labors are used in each of the stage which can be traced directly
with the products as well as various indirect materials, indirect labors and other indirect expenses
are incurred which cannot be allocated directly to the products. It needs to be allocated based on
certain activities, which drives the costs. Such activities for the Texas Instruments can be
identified as, Designing, Engineering, Machining, Testing and Order processing (ti.com, 2019).

5COST AND MANAGEMENT ACCOUNTING
Using the above cost drivers cost pools of the company such as, Designing and
engineering costs, Machining costs, Order processing costs and Inspection and quality control
costs can be allocated to various cost units.
Process of implementing Activity based costing system in Texas Instrument Inc:
To implement the Activity based costing system in Texas Instrument Inc, the costing
record keeping system should be revised in such a way so that, relevant information about the
indirect costs can be collected and the usage of various activities can be traced for each
department. Key activities driving the indirect costs needs to be identified and activity costs
should be calculated based on the total cost pool and total activities for each activity. Then the
overhead costs should be distributed to various departments based on such activity costs taking
into consideration the usage of different activities by the respective departments. For better
understanding, the cost pool of Texas Instruments can be allocated to various products in the
following way under the ABC system taking some hypothetical numeric figures.

6COST AND MANAGEMENT ACCOUNTING
Conclusion and recommendation:
From the above discussion and analysis, it can be concluded that, the activity based
costing system is a superior method of allocating overhead costs. Though it requires additional
cost and knowledge to implement, it can give accurate costing results to the company. Lastly, it
should be implemented in an organization with due care and proper knowledge so that it can
meet the intended purpose.

7COST AND MANAGEMENT ACCOUNTING
References and bibliography:
Bierer, A., Götze, U., Meynerts, L., & Sygulla, R. (2015). Integrating life cycle costing and life
cycle assessment using extended material flow cost accounting. Journal of Cleaner
Production, 108, 1289-1301.
Christ, K. L., & Burritt, R. L. (2015). Material flow cost accounting: a review and agenda for
future research. Journal of Cleaner Production, 108, 1378-1389.
Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Dale, B. G., & Plunkett, J. J. (2017). Quality costing. Routledge.
Klychova, G. S., Zakirova, A. R., Zakirov, Z. R., & Valieva, G. R. (2015). Management aspects
of production cost accounting in horse breeding. Asian Social Science, 11(11), 308.
ti.com. (2019). Retrieved from http://www.ti.com/about-ti/company/technology-
manufacturing.html#manufacturing