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Time
Driven Activity Based Costing
Time
Driven ABC simplifies Activity Based Costing by removing
the need for time consuming interviews and employee surveys that are
prone to error and expensive to maintain. Time Driven Activity Based
Costing needs only two parameters;
In
order to do this Time Driven ABC uses estimates or calculations of
how much time it takes to carry out an activity.
Cost
and time equations:
For
many Manufacturing Companies 'average' and 'approximate' times are
adequate for their product costing calculations, but for companies
with a high investment in plant and equipment, accurate times are
needed as activity, process and manufacturing costs represent a high
percentage of the cost of their products.
Cost
and time equations are therefore a key feature of Time Driven ABC as
they enable companies to quickly and accurately calculate the time
needed to complete an activity. They also mean that fewer
people are needed to set up and maintain the company's cost models,
so less time is spent generating data and more time is spent using it.
Available
Capacity:
Time
Driven ABC has a concept of 'available capacity' . Because this
takes idle and un-used activity time into account, it takes a
realistic approach to costing that enables you to model the
complexity of real operations and accurately assign costs to
products in a way that is in line with the way in which the
activities are consumed. As a consequence, a key differentiator
between conventional Activity Based Costing and Time Driven ABC
is that excess capacity costs are not automatically assigned to
products. Product costs are therefore not distorted by
automatically burdening them with the cost of unused capacity.
Time
Driven ABC has many advantages over conventional Activity
Based Costing and
Cost
Accounting
methods and it delivers many benefits, especially when it is combined
with the type of cost-pull consumption methods used by SBM's
Activity Based Process Model. Like Time Driven ABC, SBM's Activity
Based Process Model needs only 2 parameters, the cost or price of
supplying a resource and the time or quantity in which the resource
is consumed.
You
can find out more about SBM: Cost Management Solutions and Time
Driven Activity Based Costing by contacting us on the following link: info@productcosting.com
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Activity
Based Costing
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