HI5017 Managerial Accounting: Assessing TDABC at 7-Eleven Inc.

This report provides a comprehensive analysis of Time-Driven Activity-Based Costing (TDABC) and its potential implementation within 7-Eleven Inc. It begins by describing 7-Eleven Inc., its history, and its operational focus on customer needs and innovation. The report then details the features of TDABC, highlighting its advantages over traditional Activity-Based Costing (ABC) and traditional costing systems, such as quicker estimation, flexibility, and real-time reporting. A comparative analysis outlines the differences between TDABC, ABC, and traditional costing methods, emphasizing TDABC's simplified approach and ability to address the limitations of the other systems. Finally, the report interprets the suitability of TDABC for 7-Eleven Inc., suggesting that its implementation could reduce costs, simplify processes, and improve decision-making by providing accurate and timely cost information and identifying underutilized capacity. The report concludes that 7-Eleven Inc. would benefit from adopting TDABC to enhance its cost management and operational efficiency.

Managerial Accounting
1

Table of Contents
Introduction....................................................................................................................................3
1. Describe 7- Eleven Inc............................................................................................................4
2. Description and features of TDABC.....................................................................................5
3. How TDABC is different from ABC and Traditional system............................................7
4. Interpret the suitability of TDABC for 7-Eleven Inc..........................................................9
Conclusion....................................................................................................................................10
References.....................................................................................................................................11
2

Introduction
7- Eleven Inc. is a brand which is famous all over the world and the products of the company
include a major portion of the culture of America. In the report, there is a description of the
company in detail including their processes, their products, their services, etc. The report will
further include whether there will be any benefit to implement time-driven activity-based costing
which will be interpreted by stating the objectives, features. There will be also a comparison
provided in the report of TDABC with the activity-based costing and the traditional costing
system. Further, the report will also examine that whether the TDABC system is suitable if it is
implemented in 7- Eleven Inc. As a graduate consultant, the budgeting system is being evaluated
and the benefits of TDABC is provided to the company 7- Eleven Inc. and will check whether
there is a need to remove the existing system and the new system is required to be implemented.
3

1. Describe 7- Eleven Inc.
7-Eleven Inc. is a company which was founded as the World’s first store in 1927 by Uncle
Johnny which is spread all over the world. The company removed the barriers on the serving of
the drinks and the ice docks started selling liquor and beer. This impacted on the growth of the
business in 1933. In 1937, Joe C. Thompson Jr. spreads the business of Uncle Johnny and made
it triple. The name earlier was Tote’m stores which were then changed in 1946 to 7-Eleven
stores. The main objective of the company is that they fulfil the customers’ needs in every way
the company can and make the life easier for the consumers (7-Eleven, 2018). The company
believes in the nonstop innovation where they have introduced Big Gulp, Slurpee, Big Bite, etc.
The company believes in making the customers satisfy whose needs change as per the
environment. The company has been innovated an application for the users to reach the company
at any time and anywhere. The company is able to deliver the fresh products to the stores since
they have invested a huge amount in the business processes and installing the software. The
innovations and new technologies motivate the employees and the customers to be loyal since
most of the innovations are eco-friendly (7-Eleven, 2018).
The stores of the company are extended to the location where the employees, people, customers
and stores work, live and play. The main focus of the company is to lead the market and which is
only possible by serving and with the help of servant leadership the company is able to make the
life different of the customers, stores, employees, etc. The company believes in a technique to
move from one place to another and find any new talent which can grow the business then the
company implements it. When the people know what to do and when to do then the company
will succeed and grow. The team which is working with the company is multi-talented who all
are very passionate to make the life of the people very convenient. The franchise business is
ranked in top five (7-Eleven, 2018).
The company joined in the partnership with the Conservation International which is a non-profit
organization and it helps the planet to be more productive, healthier and prosperous. The strategy
of the company includes the three main areas like reducing the energy, reducing the footprint of
4

the packaging and increasing the corporate to 1%. The company is involved in those programs
which help the education and health of the youth (7-Eleven, 2018).
2. Description and features of TDABC
The ABC system though helped many companies to know the relationship between cost and
profit through various techniques. The ABC system is beneficial for the large organizations in
long-run. In the TDABC system, the management is able to identify the demand for the resource
which is required by a particular transaction, customer or product unlike the way that ABC
system used to consider by allocating the cost first to the activities and then assign that driver to
the product (Akhavan, et. al., 2016). The TDABC system uses a technique through which the
cost drivers can be estimated which will be accurate since it allows the time units to the system
which is complex or requires any special transactions. This method does not spend the time in
surveys but the managers predict the capacity of the product or the activity. The managers
allocate the particular time which will be not used while production for the machines as well as
for the employees. The managers use the previous activities for the estimation and find the
activities where the delay has been done, the quality issues; overtime has been required by the
company (Bragg, 2017).
This method to predict the capacity uses other units also rather than only preferring the time
available. The TDABC system requires two things for the estimation i.e. the practical capacity
and the time which is required by the transactions to be performed. The features of TDABC
system are as follows:
 Estimation and updating process is very quick.
 The system is very flexible since it can be changed according to the change in the
processes.
 The information which is required by this system can be fetched from the ERP and CRM
systems.
 The reporting is real time and the delivery process is very fast and due to this, the system
can handle many transactions at a particular time.
5

 Since in the system the managers estimate by observing directly the unit times, the
system can be verified.
 The capacity of the resources is involved in the process clearly.
 For the management, the system provides the information about any capacity of the
product or the activity which is not used.
 The system is not complex and by involving the time equations the orders for the product
or the activity can be changed.
The TDABC system when implemented will help the organizations in controlling the cost and
the financial transactions can be optimized. Since the method provides accurate information
about the cost and hence the system will provide the cost in a transparent way. The system will
help the company to allocate the resources in a better way and in the same way the budget can be
prepared in a more precise way. Since the method simplifies the process of the budgeting and
reporting, the system will provide services and allocate the cost where there will be no
duplication (Namazi, 2016).
6

3. How TDABC is different from ABC and Traditional system
The Activity-Based costing system is the system which was first implemented in mid- 1980 and
when it is implemented properly then the management is able to get the accurate information of
the cost so that the company is able to take the decisions effectively. The main objective of this
system is to allocate the costs that are indirect in such a way that the information is more
accurate. The traditional ABC system was also able to provide the information which was
valuable. The main problem with the traditional ABC system was that it believed in the time
which was spent on the surveys and involved a number of employees and this system were
complex and implementation of this system to large organizations is a challenge (Johnson,
2018). The company is required to handle the data information which is complex for certain
operations. The ABC system used the method of cost allocation with single cost driver
irrespective of the operation and it was difficult to track the resource. This difficulty can only be
reduced by a system which uses different cost pools and allocating the cost according to the
appropriate cost driver. The ABC system and the traditional system is expensive, time-
consuming, maintenance is difficult, and the system is not flexible since it can’t be modified
when there is a need to change. These problems were consistent in the organizations which were
small and medium (Gervais, et. al., 2010).
The manufacturing companies to allocate the production overhead to the units prefer the
traditional system. The traditional system only allocates the manufacturing overheads and
ignores the non-manufacturing overheads which are related to the production. The value of the
cost of goods sold is provided in the external reports which can only be identified by the
traditional system. In the current scenario, when the manufacturing companies are moving their
methods from manual to computers then the use of the traditional system is difficult to maintain
and update. The traditional system ignores the cost drivers that are used by the activity and hence
it will affect the decisions taken by the management (Santana, et. al., 2014).
The Time-Driven Activity-Based Costing is different from the traditional system and ABC
system in the following ways:
7

 TDABC system is based on estimates of time in a simple way and establishes the
observation in a direct manner rather than focusing on the time-consuming, process of the
survey and subjective system.
 This system uses equations based on time which will remove the difficulties of the
traditional and ABC system and then reflect the process time.
 The time to track the activities which were allocated on the basis of same cost drivers has
been removed with the help of implementation of TDABC system.
 This system is flexible since it can be modified according to the change and it can be
updated when the system requires it.
 The TDABC system provides accurate data whether the capacity is under-utilized or
above utilized in time.
8

4. Interpret the suitability of TDABC for 7-Eleven Inc.
The company is currently applying the activity-based costing system which allocates the cost
according to the same cost driver. The TDABC system is a substitute for ABC system where the
TDABC system is simpler and cooperative and the TDABC system does not work according to
the single cost drive rather it uses a system which uses the time availability of a particular
product or activity (7-Eleven, 2018). The time which was taken by the ABC system was approx.
three weeks which has now been reduced to approx. two days by using the TDABC system. The
traditional system which is used in the manufacturing companies uses the labour or machine
hours for allocation of indirect cost as a base for allocation of indirect cost. All the complexities
of the ABC system and the traditional system have been removed by the TDABC system like the
consumption of time, expensive, etc. The company is involved in the production of many
products or activities which can be simplified by using the TDABC system. The cost which is
allocated is the direct material cost, direct labour cost and the overhead cost (Masoumeh & Amir,
2015).
If the company 7- Eleven Inc. uses the TDABC system, the cost can be reduced and the
complexity will also be reduced since it implements the time equations. The TDABC system
uses the method of budgeted data while the ABC system uses the data which is real. The
company will also be able to identify the capacity of the product or the activity and any spare
capacity for the products or activities can be identified. The costs which are varied of the
company will be allocated according to the cost drivers and the time of the resources will be
reduced. If the company 7- Eleven Inc. implements the TDABC system then the company’s
management will be able to take the decisions which will be effective and efficient for the
company. Hence, the company will be of benefit if it implements the TDABC system (Stout &
Propri, 2011).
9

Conclusion
The company 7- Eleven Inc. which is a brand and is worldwide famous, where many products
are produced and which requires a system which can control or reduce the cost. From the above
report, it can be concluded that the TDABC system is the system which has many benefits or
advantages for the company. The report provides the difference of TDABC with the ABC system
and the traditional system through which it can be interpreted that the TDABC system has much
significance over the ABC system. The company 7- Eleven Inc. is currently applying the ABC
system and with the use of this system the company is able to identify the need and importance
of implementation of TDABC system. Further, the company is able to understand that there will
be no loss if the company implements the TDABC system. Lastly, it can be concluded that the
TDABC system will be suitable for the company 7- Eleven Inc.
10

References
1. 7-Eleven, (2018). About us. [Online]. Available at: http://corp.7-eleven.com/corp/about
[Accessed: 18 January 2018].
2. 7-Eleven, (2018). Corporate Social Responsibility. [Online]. Available at: http://corp.7-
eleven.com/corp/corporate-social-responsibility [Accessed: 18 January 2018].
3. Akhavan, S., Ward, L., & Bozic, K. J. (2016). Time-driven activity-based costing more
accurately reflects costs in arthroplasty surgery. Clinical Orthopaedics and Related
Research, 474(1), 8-15.
4. Bragg, S., (2017). Manufacturing Overhead. [Online] Available at:
https://www.accountingtools.com/articles/what-is-manufacturing-overhead.html [Accessed 10
January 2018].
5. Gervais, M., Levant, Y., & Ducrocq, C. (2010). Time-driven activity-based costing
(TDABC): An initial appraisal through a longitudinal case study. Journal of Applied
Management Accounting Research, 8(2), 1.
6. Johnson, R., (2018). Traditional Costing Vs. Activity-based costing. [Online] Available at:
http://smallbusiness.chron.com/traditional-costing-vs-activity-based-costing-33724.html
[Accessed 10 January 2018].
7. Masoumeh, A. & Amir, L., (2015). Implementing the Time-driven activity-based costing
System (TDABC) and comparing it with the traditional system. Technical Journal of
Engineering and Applied Sciences, 5(2051-0853), pp.471-75.
8. Namazi, M., (2016). Time-driven activity-based costing: Theory, applications and limitations.
Iranian Journal of Management Studies (IJMS), 9(2345-3745), p.3.
9. Santana, A., Afonso, P., & ROCHA, A. (2014). Activity Based Costing and Time-Driven
Activity-Based Costing: Towards an Integrated Approach. In ICOPEV-2nd International
Conference on Project Evaluation, Guimarães/PT.
11

10. Stout, D. E., & Propri, J. M. (2011). Implementing time-driven activity-based costing at a
medium-sized electronics company. Management Accounting Quarterly, 12(3), 1.
12