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COST MANAGEMENT-AKT324

TIME DRIVEN ACTIVITY-BASED

COSTING

Ch. Wiwik Sunarni

 Development of Costing
Methods
O Traditional Costing
O 1925 - 1980
O Traditional ABC
O 1980- 2004
O Time-Driven ABS
O 2004-now

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Development of abc

3
 Activity Based Costing
introduced in the 1980s
corrected traditional system
promoted cost tracing
Cause-effect assignment
Accurate cost information

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 Customer Focused Strategy
O Producing and stocking more
O Supporting more
O Customised delivery
O Smaller order size
O Providing specialized support

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 ABC PITFALLS
O The Resistance of certain people
O Expensive to build, complex to sustain, difficult
to modify
O Individual Subjective in estimation
O Time consuming due to large number of
activities
O Not enough to capture the actual complexity
O Needed large capacity to store the data
O The use of “transactional” cost driver
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 PROBLEMS of TRADITIONAL ABC
O Time consuming and costly
O Subjective and difficult to validate
O Expensive to store the data
O The model was local, unintegrated
O Uneasy to updated
O Ignored the potential unused capacity
O Fail to capture the actual complexity
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 CONVENTIONAL ABC

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 TIME DRIVEN ABC

O SIMPLER, LESS COSTLY,FASTER TO IMPLEMENT

O Eliminating interview and surveys
O BASED ON PRACTICAL CAPACITY
O USE OF TIME COST DRIVERS

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 Time-Driven ABC
O When a substantial amount of the cost of a
company’s activities are in a highly repetitive
process, the cost assignment can be based on
the average time required for each activity.
O assigns resource costs directly and automatically
to cost objects using the cost per time unit of
supplying the resource, rather than first assigning
costs to activities and then from activities to cost
objects

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 TIME DRIVEN ABC
Have 2 parameters:
1. The unit cost of supplying capacity
2. The time needed to perform an activity

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 TIME DRIVEN ABC
O TWO STEPS APPROACH:
1. Estimating the cost per time unit capacity
- Calculates cost of supplying resource capacity
- calculate capacity costs rate
2. Assigning cost to cost object
- estimating the unit time of each activity
- deriving cost driver rate

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 TIME DRIVEN ABC
O TDABC eliminate the need of interview
O TDABC account the complexity of the business
O TDABC dramatically reduced the processing time
O TDABC is easier to maintain and updated
O TDABC is more accurate presentation of capacity

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 TIME DRIVEN ABC
O Enables managers to report cost betterunused
capacity is obvious
O Easily updated to reflect the operating condition
changing
 changing operation
 Changing cost driver rate
O Changing in prices of resources
O Shift in the efficiency of the capacity
O Accomodate the complexity of real world
operations Time Equation

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 Traditional - ABC
Activity Time (%) cost Cost driver rate
quantity

Order 70 396,900 49,000 8,1 / order

konsumen

Handle 10 56,700 1,400 40,50 /

consumen inquiry

Perform credit 20 113,400 2,500 45,36 /

check check

Total 100 567,000

 Time Driven -ABC

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 TIME EQUATIONS
O Not all orders are the same and Require the
same amount of time to process
O TD-ABC estimates the resource demand by a
time equation
O Example:

Packaging time= 0.5 + 6.5 (if special handling

required)+0.2 (if shipping by air)
+30 (hazardous material)

O Time-driven ABC permitting more variety and

complexity

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 Thank You

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