A Report on the Suitability of TDABC for Sanic Hotel's Operations

This report examines the application of Time-Driven Activity-Based Costing (TDABC) for Sanic Hotel, a medium-sized hotel company. The paper provides a comprehensive overview of TDABC, its features, and contrasts it with traditional and Activity-Based Costing (ABC) methods. The study assesses the appropriateness of TDABC for Sanic Hotel's budgeting and costing processes, highlighting its potential to improve decision-making and profitability. The report recommends that Sanic Hotel adopt TDABC to overcome the limitations of its current costing system and to enhance its ability to manage costs effectively in a competitive market. The analysis emphasizes TDABC's advantages, including its simplicity, accuracy, and ability to adapt to changing operational demands. The report concludes that implementing TDABC is crucial for Sanic Hotel to optimize its financial performance and maintain a competitive edge.

Running head: THE SUITABILITY OF THE TDABC FOR A COMPANY 1
The suitability of the TDABC for A company
Name
Institution

THE SUITABILITY OF THE TDABC FOR A COMPANY 2
THE SUITABILITY OF THE TDABC FOR A COMPANY
Executive summary
The main discussion presented in this paper is how the Time Driven Activity-Based
Costing (TDABC) has surpassed the traditional models and the Activity Based Costing. This
paper has chosen the Sanic Hotel, a medium-sized Hotel company and presented a detailed
background alongside how this firm can use the TDABC in its budgeting system. This has
helped showcase the effectiveness of TDABC approach over traditional approaches. A detailed
description of TDABC is presented including its features and the differences between TDABC
and Activity-Based Costing and traditional costing to justify the need for firms to apply TDABC
approach in their operations over traditional approaches and ABC. Further, a comprehensive
discussion on whether the TDABC is appropriate to the Sanic Hotel is presented. It is discovered
that by effectively using TDABC approach, the Hotel will meets the needs of its budgeting and
costing. This, therefore, will give the CEO of Sanic Hotel a justification for the suitability and
appropriateness of TDABC implementation. This is because it is noted from the discussion that
TDABC effectively aligns to the managers’ work of making decisions with the aim of increasing
the profitability of the firm’s services or products. The suggestion derived from the report is that
TDABC approach is important for the analysis of the organizations profitability and cost. The
TDABC approach remains the most effective tool for the company decision making process.
Thus, there is a need for Sanic Hotel to employ TDABC over the traditional models or ABC
when costing.

THE SUITABILITY OF THE TDABC FOR A COMPANY 3
Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Description of the company (firm’s client).....................................................................................4
Description of TDABC and Features..............................................................................................5
TDABC........................................................................................................................................5
Features of TDABC.....................................................................................................................6
Differences between TDABC and Activity-Based Costing and traditional costing........................6
Appropriateness of TDABC............................................................................................................7
References......................................................................................................................................11

THE SUITABILITY OF THE TDABC FOR A COMPANY 4
Introduction
The report explains the use of Time Driven Activity-Based Costing in the Company that
deals with service delivery to its customers. (TDABC) is the cost accounting device used by the
management in financial planning for the measurements required to handle the production and
sales evaluation in their calculated plans. The paper specifically analyses the application of the
TDABC in the company. The first section of the report provides a brief description of the
chosen company (Sanic Limited Company). The second section deals with the features and
description of TDABC. The third part of the paper explained in detail differences between
Activity-Based Costing from TDABC and traditional costing method. The fourth section will
provide information on whether the model (TDABC) is most appropriate for the company. Then
the last part is the general conclusion.
Description of the company (firm’s client)
Sanic Hotel was founded in the early 1990 by the Community youth group. The Hotel
mainly provides accommodation services to a large number of the customers, especially the
tourists. This business trend has resulted into a series of competition among various companies
that offer accommodation services. The Management uses the information derived from the
simple tradition costing method to calculate both the indirect and indirect cost. Sanic Hotel
experiences the problem of strong competition due to hotel developments which causes a
positive movement every year especially in the city. Due to growing competition, Sanic hotel
began to offer various services to its customers. The hotel also consider the calculation of correct
cost( Direct and Indirect cost) in order to prevent the occurrence of underpricing or overpricing
which may affect the hotel profitability. Sanic hotel decided to apply modern cost allocation

THE SUITABILITY OF THE TDABC FOR A COMPANY 5
methods such as, TDABC and Activity Based Costing (ABC) which are more accurate and
effective than traditional model. This is because the company experiences difficulty in the
calculation the determination of its budget. This made the company to seek for the available
solutions to the problem.
Description of TDABC and Features
TDABC
TDABC originated in manufacturing firms in the USA; however it has shown to be very
important in corporate bodies involved in the delivery of services. TDABC is the new model for
costing that explains all the limitations and difficulties of the tradition ABC. It is less costly,
simpler and quicker to implement into the organization .This model recognizes the aptitude of
each process or department and then assigns the cost of the total resource. It also takes into
consideration the time needed to accomplish a particular activity. In case the demand for a
particular task in the process or department declines, the model can be used to approximate the
amount of resources that are released (Lorentzon & Fredlund, 2017). TDABC take into
consideration different features of activity by the equation of time. The time equations allocate
the cost and time of activity to that of the cost item. TDABC approach is made up of 6 steps:
Identifying resource groups and the activities for which they are used:
 Defining the cost of each group
 Estimating the practical capacity of each group
 Calculating cost per unit
 Determining the required time units for each activity

THE SUITABILITY OF THE TDABC FOR A COMPANY 6
 Calculating cost per transaction
Features of TDABC
The core important features of TDABC are the equations of time. The formula eases the
calculation process. Time- Driven ABC makes use of time as the core primary driver for cost.
Another important feature is that processes are quite easy to separate and the actual
resources can be divided across subtask. Time- driven activity –based costing model mainly
focuses on the company resources.
Differences between TDABC and Activity-Based Costing and traditional costing
TDABC is the modern method for costing that solves all the limitations and problems of
both the ABC and traditional model. It is less expensive, easy to understand and quicker to
implement, and enables cost driver rate to depend on practical amount of the resources delivered.
In tradition ABC, the rates of cost driver are determined by dividing cost of total activities by
quantity or volume of the transaction (amount of the customer orders and amount of setups). The
outcome of the calculated result is per transaction. It assumes the idea that every occurrence of
transaction uses equal amount of resources. This assumption is where TDABC differs. It
explained it that time drivers have high degree of accuracy than transaction drivers which are
expensive (Barros & Ferreira, 2017).
TDABC does well compare to ABC when resources are more traceable to activity,
whereas ABC performs highly as compare to TDABC if the activities are more visible to
product. TDABC removes the subjective, survey and interview to describe resource pool.
Whereas both process are not in tradition model. TDABC reduces the difficulty of cost allocation

THE SUITABILITY OF THE TDABC FOR A COMPANY 7
and measurement that are associated with the use of traditional model and ABC approach.
Another difference is that ABC includes all resource in its activity information with the use of
resource columns, whereas TDABC include the information by the actual activity rows.
Appropriateness of TDABC
In managing Sanic Hotel, the managers and board requires accurate info regarding
operational cost structures alongside profitability to assist in the process of making a decision.
The mangers and board always use a cost computation system to offer accurate info to showcase
how the organization has allocated resources to supply its services or products. The application
of TDABC has been increasingly used in the recent past over ABC and traditional in other
Hotels because it offers such required accurate info needed by the board and management.
However, Sanic Hotel has not embraced the TDABC and is still using traditional methods and
ABC despite the potential of TDABC.
The TDABC will, therefore, be more fruitful and successful in Sanic Hotel if it is
embraced in the recalculation of both direct- and indirect costs. When this is done and the
outcome compared to those results obtained through ABC or traditional methods, the outcome
will indicate that TDABC approach remains increasingly applicable and appropriate for Sanic
Hotel services costing than the currently sued ABC or traditional methods. Moreover, TDABC
has led to a more accurate and flexible use of capacity cost rate for the Hotel Industry when the
cost is being compiled and hence, Sanic Hotel stands to benefit a great deal by embracing
TDABC.
Moreover, TDABC has been appropriate in helping the hotels that have implemented it to
keep pace with the trends in the recent past whereby human mobility has surged swiftly,

THE SUITABILITY OF THE TDABC FOR A COMPANY 8
particularly via individuals who visit big cities for both business trips and holidays. This is
because this mobility has seen the Sanic Hotel’s need for accommodation to surge dramatically
thereby requiring a more effective approach to costing than ABC or traditional methods. Thus,
TDABC is always used to solve this problem by availing the platform to survive the stiff
competition by helping Hotel Industry to run its operational activities effectively and efficiently.
This is because TDABC has helped many hotels to consider each costs exhaustively including
indirect- and direct costs, and subsequently recouping them through the provided services. This
will ensure that Sanic Hotel does not undertake incorrect costing that can lead to
underpricing/overpricing that may affect its profitability and competitiveness. As been observed,
Sanic Hotel currently uses a simple traditional costing approach which has many flaws. There is
a need for Sanic Hotel to embrace a TDABC which is already proven to be more effective as
well as accurate compared to traditional approaches. Moreover, TDABC is even more effective
than ABC because it has been developed following the hurdles in the operation and
implementation of ABC approach.
Time Driven ABC approach is suitable for the operation of the organization. This is
because of the added advantage that it has compared to other approaches. The TDABC helps the
firms to solve the following problems:
 It eliminates the problems that are involved in maintenance and implementation of the
other model approach (ABC model), for example it now not necessary to perform regular
surveys to find the sharing of work personnel within the department.
 TDABC make use of both non-standard activities during the calculation of cost by taking
into consideration time equation.

THE SUITABILITY OF THE TDABC FOR A COMPANY 9
 It also take into consideration all the committed resource plus their cost, that are not
attributed to activities, products and customers but have a great influence on the item that
affect the final financial result of the year.
 The use of the TDABC in the firm also enables it to find out opportunities that can
increase the department capacity management and efficiencies.
 The model is very easy to put in place in the organization. Therefore the management and
board of governance will require fewer amounts of resource and time when developing the
model.
 It enables actual estimate of the resource demand, this enables firms to budget for the
total capacity required to be used for the purpose of production and sales estimate in the
firm’s strategic plans.
 The model can also help the firm to reduce the errors of measurements which are mostly
appears when the traditional and ABC are use in the calculation by the management.
 It include the calculation of idle capacity this enable the firm to compare the actual value
of the capacity that are available and this help to find out the cost of the activity that are not
being used by various department.
Therefore, based on the above advantages attached to TDABC over both ABC and
traditional approaches, as a graduate consultant in management consultancy firm, I
recommend Sanic Hotel (one of my firm’s clients) to shift from its current ineffective
budgeting system to TDABC because it is suitable to the Hotel.
Conclusions
The main goal of this report is to provide detail understanding of the TDABC and how
the organization can implement it in order to help increase the performance of various

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departments within the organization. It also explains the differences between TDABC and the
traditional model. The analysis of the comparison state that both the systems share quantitatively
and qualitatively approaches with an aim of generating cost of products.
Due to the many advantages that the firm realizes when it made use of the TDABC model
in the calculation of the budget and various. It is therefore advisable for the management to take
into consideration the use of the model in order to solve the limitation of the traditional model.
Because of the many advantages of TDABC, it is advisable for the companies to combine both
the models as this will increase the performance of the organization.

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References
Barros, R. S., & Ferreira, A. M. D. S. D. C. (2017). Time-driven activity-based costing:
Designing a model in a Portuguese production environment. Qualitative Research in
Accounting & Management, 14(1), 2-20.
Lorentzon, J., & Fredlund, J. (2017). Application of Performance Measurement on
Manufacturing Simulations for Knowledge-Based Decision Support.