Summary of Time-Based Activity-Based Costing

In: Business and Management

Submitted By brodaddy
Words 424
Pages 2
Mark Hamrick & Dakata Brodie
17 Nov 2013
Assignment 2.1

Summary of Time-Based Activity-Based Costing

This article’s purpose is to explain the new version of Activity-Based Costing that uses approximations to determine time-driven Activity-Based Costing. Base on rate of technological growth and dealing with companies on larger scales, the traditional method of ABC is very cumbersome. The new time-driven activity-based costing is a much more effective technique. The article further went on to contrast the two methods of costing by showcasing traditional inefficiencies, demonstrating the ease of use for the new method, and applying real-time data to increase situational awareness.

The inefficiencies of the traditional activity-based costing were the primary reasons for the new time-driven method. The article explains how the process was so cumbersome that Excel programs were not powerful enough to crunch all the numbers. Tracking information was overbearing and required dedicated teams more than a day to interpret the data.

Ease of use was a primary concern for anyone to venture back to the new activity-based costing. By simply averaging the amounts and getting ballpark figures, teams could use formulas to effectively average the costs based on the average time to complete a job, not each individual task. This method didn’t require thousands of surveys to determine the cost-only estimates. This reduced the number of items tracked and provided relatively accurate cost information quickly to the senior leadership.

Situational awareness is how accurate your perception is compared to reality. In today’s market timing is everything. With the new ABC, senior leadership or advisors are able to accurately determine the point of diminishing return. Companies could also determine if the inefficiency was self-imposed or external which could help…...

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