TDABC Analysis: Improving Cost Efficiency at Volkswagen Group

This report provides an analysis of Time-Driven Activity-Based Costing (TDABC) and its potential application within Volkswagen, a major automotive manufacturer. The report details the features of TDABC, highlighting its differences from traditional and activity-based costing methods. It assesses the suitability of TDABC for Volkswagen, arguing that its implementation could improve cost management and project efficiency. The analysis covers identification of opportunities, inexpensive implementation, coordination, origin of data, allocation of budget and resources, scalability, low updating cost and general approach. The report concludes that TDABC offers a more reliable and efficient approach to costing, enabling better resource allocation and profitability analysis within the organization. Desklib provides more solved assignments and past papers for students.

TIME-DRIVEN ACTIVITY-BASED
COSTING

TABLE OF CONTENTS
Introduction......................................................................................................................................1
A description of your firm’s client..................................................................................................1
A description of the TDABC and its features..................................................................................2
Features of TDABC.....................................................................................................................3
In what ways TDABC is different from Activity-Based Costing and Traditional Costing System4
A discussion whether the TDABC is suitable to your firm’s client................................................5
Conclusion.......................................................................................................................................6
REFERENCES................................................................................................................................7

Introduction
Time-driven activity-based costing is a technique which structures the time and cost needs of an
organization. The method is used to determine cost rate and cost compilation. The process can be
flexibly used in calculation methods in the organization, and the organization can reflect the
allocation of resources to supply its products. TDABC was planned and implemented to find out
mistakes in activity-based costing and to improve the costing system. The implementation of
TDABC is much more straightforward than ABC process. TDABC method is a very flexible
method and adopts the changes of environment in a straightforward manner. It is calculated by
analyzing aspects of cost rate and quantity of work. This method gives accurate and reliable
results, and with the information obtained from TDABC, one can analyze the capacity of the
business.
A description of your firm’s client
Volkswagen is a U.K. based organization engaged in the industry of automobiles. It was
established on May 28, 1932, and at the end of the year 2016, Volkswagen became one of the
largest automakers in worldwide sales. The firm is engaged in manufacturing of luxury models
of vehicles by analyzing the potential of a new market (About Volkswagen UK, 2018). This is
one of the largest automakers in Europe and acquires a market share of about 20%. By the end of
the year 2008, Volkswagen became the third largest automaker in the world and second largest
manufacturer worldwide by the end of the year 2012.
The objectives of Volkswagen include creative innovations and technology to achieve customer
satisfaction and quality in work. They intend to become a world leader in manufacture as well as
supplier. They try to acquire a significant share in the market with the strong financial position.
In the automotive industry, the eye-catching employer is Volkswagen.
The organization works on the projects with eco-friendly strategies so that they can achieve
success in the competitive market. The actions of the organization establish new standards which
improve effectiveness, stiffness, and profitability in the organization (Volkswagen study, 2018).
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The organization continues with standardizing the process to achieve customer satisfaction and
to achieve long-term liquidity.
The organization is one of the known brands in the automotive industry. It is engaged in the
activities of production, marketing, selling and developing vehicles. The vehicles are many types
of small cars, trucks, commercial vehicles, buses, and motorbikes. It has established its sales
marketing business in many countries like Western Europe, China, USA, Brazil, and Mexico.
The organization has a sound financial position which includes commodity, currency, interest
rates and liquidity management. In the year 2015, the group generated gross cash flow of €16.3
billion. By planning the team fixes the budgets for every month. The budgets are reviewed every
month through which the targets are achieved, and the same is compared with earlier months
target to avoid mistakes and make the growth (Toledo, 2012).
Volkswagen management group has achieved sustainable success by identifying the risk and
opportunities with effectiveness and efficiency.
A description of the TDABC and its features
Time-Driven Activity-Based Costing is a real-time computing method that identifies the
activities and assigns a cost to a particular activity.
Time-driven computer programming helps to control the flow of the computer program which is
often used in real-time computing. The program is divided into a set of task, and every task
consists of a periodic activation pattern. And Activity-based Costing is a method which identifies
the activities and assigns costs to the product. Costing also covers areas such as salaries to the
employees, production cost, management cost and evaluation cost (Öker and Adıgüzel, 2016).
Sometimes this becomes difficult for the management to manage the cost of every sector and
allocate the same in a best possible way.
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Activity-Based Costing can be classified as a technique which helps the organization and its
management to supervise the limited resources available to the organization. This protects the
cost to rise and maintains effective control of cost and time in the organization.
TDABC simplifies the need for information and focuses on:
 Time consideration in completing the activity.
 Cost and ability of available resources
TDABC facilitates the needs of resources after obtaining the cost of supplying the resources.
Through this process, the costing process has become straightforward and organized. The
method of conduction survey for the need of resources by employees is no more important for
the management. The cost is now automatically being assigned to the factors such as products,
orders, and customers. Therefore, the technique of time-driven activity-based costing balances
the time, resources, and costs for the projects in the organization
For example, let’s think about a department who handles demands and orders of the customers
(Tanis and Özyapici, 2012). Firstly, TDABC will analyze the cost to be allocated for all the
resources personnel, supervision, occupancy, equipment and technology needed by the
department. The value then will be segregated according to the capacity and knowledge with the
time available to them.
Therefore, by applying TDABC, an organization can move towards better work and success.
Features of TDABC
Identification - TDABC is a system which identifies opportunities, efficiencies, and capabilities
of the management. After identification process, the system sets out the costing for each and
every field.
Inexpensive - TDABC is deliberate, accurate and profitability model which is fast, inexpensive
and easy to build. The model requires the very low cost to be applied in business. It is easy to
adopt in running a business and easy to understand by the employees who will work with the
system of TDABC.
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Coordination - The coordination of customer relationship management provides the information
in a detailed manner which leads to better integration and support services (CPIM and Paul,
2016). The implementation of TDABC initially requires the data of the organisation relating to
time-driven activity and the costing for the same process.
Origin of data - For particular transactions the system is based on individual orders, processes,
suppliers, and customers. The data is obtained for these transactions and the process of costing is
carried out by the management of the organisation.
Allocation of budget and resources - The model estimates the needs of resources and helps
organisations to allocate budget required for sales and production plans. Availability of the
resources is the major concern of the organisation because the scarcity of the same can affect the
entire production cycle.
Scalability – Large and small organisations can easily apply the model as it is easily scalable
across applications software and database technologies (de Arbulo et al, 2012).
Low updating cost – The TDABC model requires the very low cost to be updated as per the new
technologies and changes in the work environment. Updating the software from time to time
maintains its efficiency and effectiveness.
General Approach – This is a general approach for cost and profitability management that can be
used in any industry or company with complexity in customers, products, channels, segments,
and processes.
These features allow TDABC to move from a complex and expensive financial system to a tool
which provides accurate and actionable data to managers quickly, frequently, and inexpensively.
In what ways TDABC is different from Activity-Based Costing and
Traditional Costing System
TDABC is a method which identifies the needs and capacity of every department and allocates
the cost of resources required to perform an activity. The quantity and quality of thee resources
are also decided through this technique. Activity-based costing technique evaluates the activities
related to production and assigns a cost to the activities and products. In traditional costing, the
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method used to allocate cost is average overhead rate method. The direct and indirect costs are
also extracted in traditional costing (Schuhmacher and Burkert, 2013).
TDABC captures characteristics of an activity which will require more time and cost. The
method assigns time and cost to the project according to the requirement and after analysing the
quality and quantity of the project. Therefore, TDABC is more reliable technique than activity-
based costing and traditional costing. Activity-based costing is much reliable technique as it
considers related factors in assigning cost to the product. At the time of costing administrative,
managerial and non-manufacturing expenses are also review. But the process is complex and
time consuming (Kumar and Mahto, 2013). On the basis of average overhead rates technique
traditional costing becomes a simple method of analysing the cost of the products. Therefore, the
traditional costing is comparatively less reliable.
In TDABC the time and cost of the project are determined before the project is allocated to the
employees. Through the analysis of the project, it is determined that how much time will be
required to complete the project and the budget required to complete the project. In activity-
based costing the once the production process is completed the next step is a determination of the
cost (Mahal and Hossain, 2015). While in traditional costing the exact cost is not obtained by the
management as the projects and resources are randomly allocated to the employees in the
organisation. This method does not consider all the factors related to cost and affect the cost
determination of the project. There is no sequence and pattern maintained to diversify the work
among the employees.
A discussion whether the TDABC is suitable for your firm’s client
I have been working as a graduate consultant and after the study of the organisation I realised
that the organisation needs to implement TDABC in its business process. TDABC is suitable for
the organisation because right now they are not able to allocate the required time and cost to their
projects which is leading to mismanagement and delay in completing the projects on time
(Ozyurek and Dinç, 2014). The organisation lacks in identifying the needs of resources required
for the completion of the project and they are facing problem in identifying the core
competencies of the projects.
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The CEO of the organisation realised that this method is simpler as it requires estimation of two
parameters i.e. how much cost is required for each department to supply resources to the
business activities and how much time is required to carry out each type of activity.
The requirement of the organisation is to simplify the costing system through computer
programming system and to control the flow of computer program. The need of the organisation
is to control resource allocation cost, the cost incurred to allocate the resources for the projects
should be done through a pattern and the same structure can be used in different projects also
which reduces the burden of work of the management (Tanis and Özyapici, 2012). Through
TDABC organisation need to calculate the cost in determining the operation results by
comparison of selling prices and ideal capacity of the work system.
The organisation has divided the activity into a number of task or programs in order to control
the cost of the activities performed. The cost should be directly and indirectly assigned to the
respected products through TDABC. This will help to assemble a structure of the program which
is accurate, easy and fast in execution of activities.
TDABC is a reliable method and accurate information is obtained through this process about the
projects needs. Before providing guidelines to the employees for the completion of the project
the information about the time management and cost management are also should be provided
(CPIM and Paul, 2016). This technique has helped many organisations to identify profit
enhancement of the project and identifying the opportunities for the organisation.
Conclusion
TDABC has developed into a popular approach to business management. Through this process,
the need for the amount of data is decreased, and efficiency is increased by which organization
can improve the methods of costing and time management. It requires less time and resources
and ads up new activities with the available cost and resources in the control of the organization.
This method helps in the reliable management of projects and protects from high incurring cost
of projects. This method relates to increasing in profits of the organization. The management can
relax and perform other duties as the important work of determination and allocation of cost and
resources to an activity is completed by TDABC approach.
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REFERENCES
Books and Journals
CPIM, G.C. and Paul, D.D., 2016. Time-driven or driver rate-based ABC: how do you
choose?. Strategic Finance, 97(8), p.20.
de Arbulo, P.R., Fortuny, J., García, J., de Basurto, P.D. and Zarrabeitia, E., 2012. Innovation in
Cost Management. A Comparison Between Time-Driven Activity-Based Costing
(TDABC) and Value Stream Costing (VSC) in an Auto-Parts Factory. In Industrial
Engineering: Innovative Networks (pp. 121-128). Springer, London.
Kumar, N. and Mahto, D.G., 2013. Current Trends of Application of Activity Based Costing
(ABC): A Review.
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.
Öker, F. and Adıgüzel, H., 2016. Time‐driven activity‐based 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.
Schuhmacher, K. and Burkert, M., 2013. Traditional ABC and time-driven ABC: an
experimental investigation.
Tanis, V.N. and Özyapici, H., 2012. The measurement and management of unused capacity in a
time driven activity based costing system. Journal of Applied Management Accounting
Research, 10(2), p.43.
Toledo, B., 2012. Global ergonomics strategy in Volkswagen: from the product construction,
over the planning until the serial process. Work, 41(Supplement 1), pp.4413-4417.
ONLINE
About Volkswagen UK, 2018 [Online] [Access Through] <http://vwgcareers.co.uk/about>
[Accessed On: 24th January, 2018]
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Volkswagen study, 2018 [Online] [Access Through]
<http://www.mynewsdesk.com/uk/volkswagen> [Accessed On: 24th January, 2018]
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