Evaluating Time-Driven Activity-Based Costing for Nestle's Operations

This report provides a comprehensive analysis of Time-Driven Activity-Based Costing (TDABC) and its suitability for the Nestle Company. It begins with an introduction to the concept of TDABC, highlighting its advantages over traditional costing and Activity-Based Costing (ABC). The report offers a detailed overview of Nestle, including its company profile, purpose, values, and strategic roadmap. It then delves into the specifics of TDABC, explaining the time equation, key features, and the process of assessing per-unit cost, and time consumption. Furthermore, the report differentiates between TDABC, ABC, and traditional costing methods, explaining why TDABC is appropriate for Nestle's operations. The report concludes by summarizing the benefits of implementing TDABC within Nestle's complex business structure, emphasizing its potential to enhance cost management and improve overall productivity. Relevant references are also included.

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Nestle
Managerial Accounting
Time-Driven Activity-Based Costing

TIME-DRIVEN ACTIVITY BASED COSTING
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Table of Contents
Introduction...........................................................................................................................................2
Company Profile................................................................................................................................2
Purpose of Nestle..........................................................................................................................3
Values of Nestle.............................................................................................................................3
Strategy of Nestle..........................................................................................................................3
Strategic Roadmap Of Nestle.........................................................................................................4
Time-Driven Activity-Based Costing (TDABC).....................................................................................4
Time Equation to Capture Complication........................................................................................6
Features of Time-Driven Activity-Based Costing (TDABC)..............................................................7
Difference between Time-Driven Activity-Based Costing (TDABC) and Activity-Based Costing (ABC)
...........................................................................................................................................................8
Difference between Time-Driven Activity-Based Costing (TDABC) and Traditional Costing..............8
Reason for why Time-Driven Activity-Based Costing is suitable for Nestle Company........................9
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11

TIME-DRIVEN ACTIVITY BASED COSTING
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Introduction
Every organization wants to increase its productivity and manage the time and resources
taken by each activity. Nestle Company is one of them who always want to improve its
productivity and profit. Nestle is known as the largest company of food and beverages and a
well-known brand recognized across the world. This report is going to be prepared in order to
identify whether the Time-Driven Activity-Based Costing (TDABC) will be suitable for the
process and function of the business. The report will provide the brief description of the
Nestle Company along with the model of Time-Driven Activity-Based Costing (TDABC)
and its features. Further, the report will differentiate between the Activity-based Costing
(ABC), Traditional Costing, and Time-Driven Activity-based Costing (TDABC).
Company Profile
Nestle is an international company dealing in the sector of food and beverages. Headquarter
of the company is in Vevey, Switzerland. It is known as the world’s biggest company of
food, evaluated by metrics and revenues, since 2014. In 2014, the company was ranked on
No. 72 by the Fortune Global 500 and in 2016; it was ranked on No. 33 in the Forbes Global
2000 which involve the list of biggest companies. The product line of Nestle includes
breakfast cereals, Maggie, baby food, tea and coffee, medical food, ice cream, confectionery,
bottled water, snacks, pet foods, dairy products and frozen food (Nestle, 2018). Twenty-nine
brands of Nestle have yearly sales over CHF1 billion, comprising Nesquik, Maggie,
Nespresso, Vittel, Nescafe, Stouffer’s, and Kit Kat. Company operates in 194 countries with
447 factories, and 330,000 employees. Nestle company is the major shareholder of world’s
biggest company of cosmetics i.e. L’Oreal.

TIME-DRIVEN ACTIVITY BASED COSTING
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Purpose of Nestle
The purpose of Nestle is improving the life's quality and contributing to a better and
improved future. They want to contribute in shaping a healthier and better world by
encouraging society to have better and healthier lives. This is their way to contribute to
society and fulfill their corporate social responsibilities and confirming the success of the
company for long-term (Nestle, 2018).
Values of Nestle
The values of Nestle are imitated by their way of pursuing business; they always follow and
respect the rules and regulation implemented by the government. They always give equal
respect to the people with whom they work.
Strategy of Nestle
In today's scenario nutrition act as an important aspect of everyone's life. The strategy of the
Nestle Company is focused towards delivering various benefits to every individual through
the products and services they offer. The company is working hard from last 150 years and
now they have succeeded in attaining the top position by anticipating and understanding the
society needs, and constantly familiarizing themselves to grab the presented opportunities
(Nestle, 2018).
The fast-changing expectations and needs of the society reconfirm the strength of our
wellness, health and nutrition strategy. The world is at the point of change. The rapidity,
strength and the range of change are extraordinary. The digital disturbance is redesigning the
whole industry, relations with the company’s retailers and suppliers, and customers.
Technology and science developments are providing opportunities to the Nestle Company in
order to play a major role in considering the challenges faced by the society. In the world

TIME-DRIVEN ACTIVITY BASED COSTING
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there are millions of people who do not receive proper nutrition, it the duty of Nestle
Company to help them and provide proper solutions (Nestle, 2012).
Strategic Roadmap Of Nestle
Source [https://www.nestle.com/aboutus/strategy]
Time-Driven Activity-Based Costing (TDABC)
The Time-Driven Activity-based Costing (TDABC) method is a new technique which is
introduced for overcoming the problem with Activity-based Costing. Activity-based Costing

TIME-DRIVEN ACTIVITY BASED COSTING
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(ABC) has supported many organizations in recognizing necessary opportunities of profit and
cost enhancements by re-presenting the loss-making customer relationships, procedure
developments on the shop floor, less cost of the design of the product, and modernized
product diversity (Ayvaz and Pehlivanli, 2011). The method provides probable large scale
opportunities for the companies. Luckily, the explanation is now conceivable by a method
which is named as time-driven activity-based costing (TDABC). This method has helped
many companies who have implemented this method in their system.
In this new method, management of the company can directly evaluate the demand of the
resources obligatory by every activity, deal, service, product or transaction rather than first
allocating the cost of the resource to the activities and then to customers or products (Basuki,
2014). For every resources group, estimation is required only for two parameters: per unit
cost of delivering capacity of resources and the unit time consumption of capacity of
resources by customers, products, and services. At the same time, the Time-Driven Activity-
based costing or (Time-Driven ABC) offers precise rates of cost-driver by permitting unit
times to be projected even for multifaceted, particular dealings (Kaplan and Amderson,
2007).
Assessing the per time unit cost of capacity- As an alternative to measure the time spent by
the employees, for this the managers will firstly identify the practical capacity of the supplied
resources as a percentage of hypothetical capacity. There are numerous ways to identify this.
According to the thumb rule, it can be easily assumed that applied capacity is 80 to 85% of
hypothetical full capacity. Therefore, if a machine or employee is ready to do the job of 40
hours for per week, then its applied capacity for per week is 32 to 35 hours.
Accessing the unit time of events- After calculating the per time unit cost of delivering
assets to the activities of the business; managers then determine the time consumed by a unit

TIME-DRIVEN ACTIVITY BASED COSTING
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of each activity. These figures can be attained by direct observation or by employee’s
interviews. There is no requirement of the surveys, even though employee’s survey might
help in big organizations. It is necessary to strain, however, the matter is not the time spend
by employee completing an activity but the time taken to finish one unit of particular activity.
Once, again accuracy is not dangerous; bumpy accuracy is enough (Kaplan and Anderson,
2007).
Driving the rates of the cost drivers- The rates of the cost-driver can be computed by
multiplying the variables i.e. two input variables, it is just has been projected.
Examining and reporting costs- The managers of the company are permitted by the time-
driven activity-based costing that their cost can be reported on a continuing base in a mode
that discloses the activity’s cost and time spent on those activities.
Updating the model- The Time-driven activity-based costing (TDABC) method can be
updated by the managers of the company to show variations in operating circumstances. In
order to add more activities in a department, there is no need for personnel interview, they
can just guess the required unit time for every activity. The rates of the cost-drivers can also
be updated by the managers.
Time Equation to Capture Complication
It has been assumed simply that every order or transaction of a specific type are similar and
need the same time duration to process. But Time-Driven Activity-Based Costing doesn’t ask
for this explanation. It can accommodate the difficulty of real-world processes by integrating
time equations, a different and attracting characteristics that allows the method to imitate how
order and action characteristic which affects the time of processing (Kaplan and Anderson,
2006). Time equation highly simplifies the assessing procedure and creates a far more precise

TIME-DRIVEN ACTIVITY BASED COSTING
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cost model which will make the possibility of consuming traditional ABC techniques. The
key point is that the transaction can simply become complex, management of the company
can normally recognize how they are becoming complicated. The variable elements that
influence most of the activities can frequently state and classically record in the information
system of a company.
Features of Time-Driven Activity-Based Costing (TDABC)
Time-Driven Activity-based Costing (TDABC) is less expensive and can be easily
installed in the functioning of the business and can also be maintained properly. There
is no need to make additional expenses in this method.
Multiple time driver methods are implemented in this new method which will hold the
complexity of the Nestle Company in an improved way.
With the support of Time-Driven Activity-based costing the costing process becomes
simple because it supports the organization’s management in eliminating events like
interviews and survey and use applicable and significant information.
Organizations can enhance their system of cost management by explaining their
process capacity and application of cost and effectiveness of the orders, customers or
products.
Time-Driven Activity-based Costing method is different because it uses time equation
in which the consumption of time is evaluated on each activity.
This new approach identifies the opportunities for the competencies of the process
and supervision of capacity.
Time-Driven Activity-based Costing (TDABC) method is an exact and profit making
method because it is fast and simple to construct.

TIME-DRIVEN ACTIVITY BASED COSTING
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Difference between Time-Driven Activity-Based Costing (TDABC) and Activity-Based
Costing (ABC)
Time-Driven Activity-based Costing
(TDABC)
Activity-based Costing (ABC)
A method which simplifies the process of
costing by removing the employee’s survey
and interview needs for assigning the
activities with resources cost is known as
Time-Driven Activity-based Costing
(TDABC).
Activity-based costing or Traditional ABC is
considered as a methodology which
recognizes the activities of an organization
and allocates the cost to every activity along
with the resources to every service and
product as per the genuine consumption by
each (Johnson, 2018).
Under the time-driven activity-based costing
(TDABC) the maximum priority is given to
the time driver for assigning a cost to every
services and product (Hoozée and Hansen,
2014).
Under Activity-based costing (ABC)
maximum priority is given to cost drivers for
assigning a cost to every product and service
(Özyürek and Dinç, 2014).
Difference between Time-Driven Activity-Based Costing (TDABC) and Traditional
Costing
Time-Driven Activity-based Costing
(TDABC)
Traditional Costing
The method which assists in identifying the
capacity of each department and allocates the
cost of the capacity of integrated resources
over the cost object maintained on the
The assigning of production overhead to
services or products depending on the
volume metric like production machine hours
or direct labor hours is known as Traditional

TIME-DRIVEN ACTIVITY BASED COSTING
9
required time element in order to start an
activity is known as Time-Driven Activity-
based Costing (TDABC).
Costing (Accounting Coach, 2018).
The Time-Driven Activity-based Costing
(TDABC) method is very capacity sensitive
and evaluates the activity’s standard cost
with the support of standard rates.
The traditional costing method allocates
indirect cost provisional to the volume. It
results in product’s cost overvaluation with
high volume; on the other side services or
products become underrated which are of less
volume (Houghton Mifflin Harcourt, 2016).
The new approach is cost saving as it does
not involve more cost in its installation and
implementation, along with this it includes
all different features of a particular activity.
Traditional costing method takes other cost
drivers into account that might be able to
increase the cost of the item (Wilkinson,
2013).
Reason for why Time-Driven Activity-Based Costing is suitable for Nestle Company
The Nestle Company involves various departments in its function of the business who
implement various procedures and activities for appreciating the productivity and
growth of the business. This new approach is created for this type of organization so
that the management can handle every activity and function.
Time-Driven Activity-based Costing (TDABC) is cost saving and easy to implement.
Therefore, this method will not disturb the budget of Nestle Company.
This method is an improved version of Traditional Activity-based Costing and it
supports company in guessing the basis demand of every single customer, product and

TIME-DRIVEN ACTIVITY BASED COSTING
10
procedure with the support of necessary time to attain the events and the cost unit
time capacity.
Conclusion
In the conclusion, it can be suggested that Time-driven Activity-based Costing (TDABC) is
an effective technique or method which estimates the time and cost of the activities
implemented in an organization. This new approach is suitable and appropriate for Nestle
Company because it will help them in increasing their business’s productivity. Along with
this it is an inexpensive method and can be easily installed. As Nestle is the leading company
in the sector of food and beverages, therefore, it is important for the company to have an
improved and enhanced costing system. The above report has explained in detail about the
model of Time-Driven Activity-based Costing and its features along with the brief
description of the Nestle Company. The report has also identified some dissimilarity between
the Time-Driven Activity-based Costing (TDABC) and Activity-based Costing (ABC) and
the differences between Time-Driven Activity-based Costing (TDABC) and Traditional
Costing.

TIME-DRIVEN ACTIVITY BASED COSTING
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References
Accounting Coach, 2018, Traditional costing definition, Accessed on: 12 January 2018,
Accessed from: https://www.accountingcoach.com/terms/T/traditional-costing
Ayvaz, E., and Pehlivanli, D., 2011, The Use of Time Driven Activity Based Costing and
Analytic Hierarchy Process Method in the Balanced Scorecard Implementation, International
Journal of Business and Management, 6(3), pp. 146-158.
Basuki, B., 2014, The Application of Time-Driven Activity-Based Costing In the Hospitality
Industry: An Exploratory Case Study, JAMAR, 12(1), 27-42.
Hoozée, S., and Hansen, S.C., 2014, A Comparison of Activity-based Costing and Time-
driven Activity-based Costing, Accessed on: 12 January 2018, Accessed from:
https://calhoun.nps.edu/bitstream/handle/10945/47751/Hansen-A-Comparison_2014-08.pdf?
sequence=1
Houghton Mifflin Harcourt, 2016, Activity-Based vs Traditional Costing, Accessed on: 12
January 2018, Accessed from:
https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-ii/activity-based-
costing/activity-based-vs-traditional-costing
Johnson, R., 2018, Traditional Costing Vs. Activity-Based Costing, Accessed on: 12 January
2018, Accessed from: http://smallbusiness.chron.com/traditional-costing-vs-activitybased-
costing-33724.html
Kaplan, R.S., and Amderson, S.R., 2007, Time-driven activity-based costing, Accessed on:
12 January 2018, Accessed from:
https://fenix.tecnico.ulisboa.pt/downloadFile/3779580640677/HBR-Time-Driven
%20Activity-Based%20Costing.pdf

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Kaplan, R.S., and Anderson, S.R., 2006, Time-Driven Activity-Based Costing, Accessed on:
12 January 2018, Accessed from: https://hbswk.hbs.edu/item/time-driven-activity-based-
costing
Kaplan, R.S., and Anderson, S.R., 2007, Time-driven activity-based costing, US, Harvard
Business School Press.
Nestle, 2012, Nestlé in society, Accessed on: 12 January 2018, Accessed from:
http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsi
bility/nestle-csv-full-report-2012-en.pdf
Nestle, 2018, About the product, Accessed on: 12 January 2018, Accessed from:
https://www.nestle.in/brands/mpn/ceregrow/about-the-product
Nestle, 2018, About us, Accessed on: 12 January 2018, Accessed from:
https://www.nestle.com/aboutus
Nestle, 2018, Strategy, Accessed on: 12 January 2018, Accessed from:
https://www.nestle.com/aboutus/strategy
Özyürek, H., and Dinç, Y., 2014, Time-driven activity based costing, International Journal
Of Business And Management Studies, 6(1), pp. 97-117.
Wilkinson, J., 2013, Activity-based Costing (ABC) vs Traditional Costing, Accessed on: 12
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traditional-costing/