Time-Driven Activity-Based Costing Report: Johnson & Johnson Analysis

This report presents an in-depth analysis of Time-Driven Activity-Based Costing (TDABC) and its suitability for Johnson & Johnson, a multinational manufacturing company. The report begins with an overview of managerial accounting and the benefits of TDABC, highlighting its efficiency in complex business environments. It includes a description of Johnson & Johnson, outlining its diverse product lines, vision, mission, and growth drivers. The core of the report delves into TDABC, explaining its features, the use of time equations, and how it differs from Activity-Based Costing (ABC) and traditional costing systems. A detailed comparison between TDABC, ABC, and traditional costing systems is provided, emphasizing the increased accuracy and efficiency of TDABC. The report concludes by arguing that TDABC is a suitable method for Johnson & Johnson to enhance productivity, manage operational costs, and make informed decisions regarding pricing and resource allocation. The implementation of TDABC is presented as a means to improve the company's overall effectiveness.

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Accounting
Managerial Accounting
1/17/2018

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Contents
Introduction......................................................................................................................................1
A description of firm’s client...........................................................................................................3
Vision...........................................................................................................................................4
Mission........................................................................................................................................4
Growth drivers of company.........................................................................................................4
Code of business conduct............................................................................................................5
A description of the TDABC and its features..................................................................................5
Time equation..............................................................................................................................6
Features of TDABC.....................................................................................................................6
In what ways TDABC is different from Activity-Based Costing and traditional costing systems. 7
Time-driven Activity-based costing and Activity-based costing................................................7
Time-driven Activity-based costing and traditional costing system...........................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Introduction
Managerial accounting is a process of measuring, interpretation, investigating, determining and
communicating the information for the pursuit of organizational objectives and goals. It is

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essential for managers in the companies to keep the record of the resources that are required to
accomplish the order and processes. Time-Driven Activity-based costing is an improved method
of the Activity-based costing and the method is introduced by Kaplan and Anderson to save the
time and the amount of the companies who implemented ABC. The report will discuss the
concept of the Time-Driven Activity-based costing and its features.
The report reflects that the suitability of this method for the company. The company that has
been selected for the analysis is Johnson and Johnson, a leading manufacturing company. The
report also includes the difference between TDABC (Time-driven Activity-based costing) and
ABC (Activity-based costing) and traditional costing system.

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A description of firm’s client
Johnson & Johnson is an American multinational that came into the existence in the year 1886
with its headquarters in New Brunswick, New Jersey. J&J produces medical devices, consumer,
and pharmaceutical goods and it is having more than 125,000 employees in 60 countries. In the
year 2015, the company had the sales of $70.1 billion (Johnson & Johnson, 2017). The company
innovation team search for the positive effect on the health of the human beings with the use of
the innovative products. J&J provide the opportunities to the entrepreneurs to live their dream of
creating healthcare solutions to enhance the lives of the people globally. The company is also
dealing with the innovators so that they can exchange the ideas and resources that lead to the
success of the company (Johnson & Johnson, 2017).
The company has faith in caring the world, individual at a time, motivates and unites the
employees of the company. The products offered by the company are:-
 Consumer products- J & J offer the world’s largest variety of end user healthcare
products. The company is able to fulfill the health needs of families by offering them pain
relievers, allergy medicines, nasal decongestants, anti-diarrheal. The portfolio of baby
brands consist of JOHNSON’S baby is well-known as one of the trusted by moms and
hospital for more than 115 years (Johnson & Johnson, 2017).
 Medical devices- The business activities of the company are also involved in the medical
devices that help the company to reach more patients and restoring more lives. The
company is focusing on more than 100 years on advanced technologies, products, and
services to improve the patient care and to bring better precision on each and every phase
of operation (Johnson & Johnson, 2017).

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 Pharmaceutical products- Pharmaceutical companies of J&J stated some of the most
devastating and complex diseases faced by the peoples. The company is making the use
of the advanced biological treatments with the help of which the company is able to bring
the changes in the way the diseases are prevented, intercepted and cured (Johnson &
Johnson, 2017).
Vision
Vision slogan of the company is ‘Be yourself, change the world’.
The vision of the company is for every member of the organization to make use of their unique
backgrounds and experiences combinable to spark the solutions that lead to the healthier and
better world (Johnson & Johnson, 2016).
Mission
The company believes in caring the world and to help the people everywhere across the world to
live happier, longer and healthier lives. The mission of the business is to bring diversity to the
organization business practice. The company believes that they will spread the culture of
belonging where minds and hearts combine together to unleash the potential of a talented mix of
individuals within the J&J (Johnson & Johnson, 2016).
Growth drivers of company
There are some of the areas where the company is focusing that help the company in growth and
prosperity for the future in the context of Cerdo and strategic principles (Johnson & Johnson,
2017).
 Creating value with the help of innovation

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 Global Reach and Local Focus
 The Leadership Imperatives
 Excellence in Execution
Code of business conduct
The code of business conduct of J & J is to ensure that they are able to perform the business
activity in high standard and also believes in meeting the obligation related to the stakeholders
(Johnson & Johnson, 2017).
A description of the TDABC and its features
Time-driven Activity-based costing method is the accounting method that is new or advances
method of ABC (activity-based costing) and this method is a driving on a base time. TDABC
method saves the time and money of the manufacturing and the service companies. This method
is generally used by the large organization with the complex business transaction as this method
can accurately account the compound business transactions of different departments. This system
removes the requirement of the surveys and interviews that is essential for the analyses of
resource pools because this method includes direct observation method (Gervais, Levant, and
Ducrocq, 2010).
The companies find this method easier to implement within the organization as compared to the
traditional ABC model. Time-driven ABC needs the prediction of dual parameters which include
the unit cost of supplying capacity and the time required to execute a transaction or an activity.
This is one of the most accurate methods that represent the under and over volume by expressing
capacity in units of time due to this most of the companies are making use of this system. The

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managers of the companies find it easy to maintain and update with the use of the time equations
(Ozyurek, and Dinç, 2014).
Time equation
Time equations in TDABC are an illustrative of the services that are offered by the department of
the company. This equation is useful for this method to get the accurate prediction of the
resources required to fulfill the business requirements that are essential for the budgeting
purpose. The use of the time equation is supported by the today’s ERP system due to which the
managers of the company can simply update the capacity cost rate with the change in the
operational conditions. The implementation of the ERP is increasing in the company which is
indirectly helping the TDABC method (Ozyurek, and Dinç, 2014). ERP system stores the data
that is essential to calculate the time needed to accomplish the order or process within the
organization.
Features of TDABC
 This method is one of the effective methods that correct the major challenges come
across in the CBA.
 This approach helps the managers of the firms to provide an additional strategic
visualization by analyzing the under and over a volume of the divisions of the company.
 This method is one of the easier methods to handle many transactions in the business
practice and still this method provides fast processing times and the real-time reporting
(Monroy, Nasiri, and Peláez, 2014).
 This method provides the organizations a high level of details and accuracy with the low
cost working.

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 TDABC brings the high-level of finesse by monitoring the level of transactions instead of
the level of products or customers.
In what ways TDABC is different from Activity-Based Costing and
traditional costing systems
TDABC is new ABC method that came into the existence after the improvement in the ABC.
The ABC method was introduced to resolve the problems in the traditional accounting system.
There is huge difference between the TDABC and ABC and traditional costing system which is
clear from the tables given below:-
Time-driven Activity-based costing and Activity-based costing
Activity-based costing Time-driven Activity-based costing
The level of accuracy is less in Activity-based
costing as compared to the TDABC.
This model is able to provide the high accuracy
of the large manufacturing and service
companies.
This method assigns the resources initially
before assigning it to the object which makes
this method complex as compared to the
TDABC (Browning, 2017).
This method directly assigns the cost to the
object that can be customer, transactions,
processes, and order types.
In ABC, there is involvement of the
complexity and the need for the data
processing.
This method removes the requirement of the
data processing as this method believes in
direct observation along with this the method
can handle the complex business activities of

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the organization (Ayvaz, and Pehlivanl, 2011).
Time-driven Activity-based costing and traditional costing system
Traditional costing system Time-driven Activity-based costing
The level of accuracy is less in the traditional
costing system due to which there was the
introduction of the ABC that provide the
accurate volume of costs but not more than the
TDABC. The level of accuracy is more in
TDABC than ABC and traditional costing
method (Medeiros, Santana, and Guimarães,
2017).
The level of accuracy is high in the TDABC
that is essential to measure the cost that is
associated with the cost object that leads to the
better and effective decision making while
identifying the pricing or decreasing the
operational costs.
This method identifies the overhead cost by
dividing cost across the products according to
the predicted ratio of resources which include
machine time or space occupied.
This method can effectively allocate overhead
costs to product and services by determining
the resource consumption while manufacturing
the products and services.
A discussion on whether the TDABC is suitable to your firm’s client
TDABC is suitable for the manufacturing company Johnson and Johnson for enhancing the
productivity in less time with low cost. The company is having the compound business activities

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in the different department which is essential to be maintained and it is possible with the use of
the TDABC method.
 The implementation of the TDABC model will help the company in identifying their
operational cost to predict the required resources to fulfill the upcoming requirement after
evaluating how to enhance the effectiveness of processes and modify the product pricing,
product, and customer mix to enhance the profitability. Therefore, the implementation of
the TDABC will enhance the effectiveness of Johnson and Johnson (Adioti, and
Valverde, 2013).
 In TDABC model, time is used as a volume of resource consumption by events that have
been triggered by the cost objects to create outputs. These events of the company might
fluctuate according to the product or service request, the type of customer, location of
delivery and many other aspects. Though, with the use of the TDABC company will get
to know the accurate volume of the resource consumption. Johnson and Johnson can
implement this TDABC method which helps the company in getting the accurate volume
of the resources required.
 TDABC is easier to implement, maintain and organize in the organization as compared to
the ABC. So, Johnson and Johnson don’t have to spend more time on implementing the
method as it is easy to maintain, implement and organize.
 TDABC method removes the time of interviews and surveys and believes in the direct
observation which saves the time of the company and they can spend this time in other
activities to enhance the productivity (Adioti, and Valverde, 2013).

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Conclusion
TDABC (Time-Driven Activity-based costing) is an effective method for the service and the
manufacturing companies. Large manufacturing companies can make use of this approach to
handle the compound operations of their business. The report shows how this approach is
suitable for the Johnson and Johnson manufacturing company. The implementation of this
approach in the company will not only save the time and money of the company but will help the
manager by providing the accurate volume of resources required to meet the objective. The
companies don’t have to spend the additional time in processing the data as this method
eliminates the data processor with the use of ERP systems.

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References
Adioti, A.A. and Valverde, R., 2013. Time-driven activity based costing for the improvement of
it service operations. International Journal of Business and Management, 9(1), p.109.
Ayvaz, E. and Pehlivanl, 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), p.146.
Browning, J.P., 2017, What Types of Businesses Do Activity-Based Costing?, Accessed on; 18th
January 2018, Accessed from https://bizfluent.com/info-12105073-types-businesses-
activitybased-costing.html
Gervais, M., Levant, Y. and 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), p.1.
Johnson & Johnson, 2016, Diversity & Inclusion, Accessed on; 18th January 2018, Accessed
from https://www.jnj.com/about-jnj/diversity
Johnson & Johnson, 2017, About Johnson & Johnson, Accessed on; 18th January 2018, Accessed
from https://www.jnj.com/about-jnj
Johnson & Johnson, 2017, Code of Business Conduct, Accessed on; 18th January 2018, Accessed
from https://www.jnj.com/code-of-business-conduct
Johnson & Johnson, 2017, Consumer Products, Accessed on; 18th January 2018, Accessed from
https://www.jnj.com/healthcare-products/consumer#health-healing-products