Time-Driven Activity-Based Costing

Time-Driven Activity-Based Costing (ABC) 1. The time-driven ABC defines the form of activity based costing model that allows the managers to report the incurred costs on a continuous basis in a manner that shows the costs of the activities and the time spent on the activities. The model works through reviewing the costs of the unused resources and recommending actions to understand whether to lower the costs incurred in supplying the unutilized resources in future periods. It also monitors the actions associated with the business activities over time.
Under the time-driven ABC approach, the managers are able to update any changes related with the inherent operating conditions. With more activities for a company’s division, the model makes it possible to estimate the potential unit time necessary for the additional activities within the organization (Kaplan & Anderson, 2013). It is also becomes easy to update the rates of the cost drivers. Some of the main factors that could lead to changes in the cost drivers include the changes in the prices of the products and the shifts in the level of efficiency of the organization’s activity.
2. I believe that the time-driven ABC is superior to a more traditional ABC approach. It is because the time-driven ABC goes beyond the traditional ABC approach to give more accurate information in terms of costs and business profitability. The accurate information is important in the making of the business decisions (Kaplan, 2005). The expansion to the time driven ABC is able to provide an accurate view of the performance of activities. For example, the time analysts are able to evaluate the changes in the prices as well as the shifts in the costs of products and materials. These imply the significances of the time driven ABC in giving more accurate information about the activities within the organizations. Therefore, it is clear that the time-driven ABC is more superior to the traditional ABC model.

Author: Barry Holmes