A Comparison of Activity-Based Costing and Time-Driven

Activity-Based Costing:
Effort Choices between Group and Individual Tasks in
Mixed Incentives

Word count
Table of Contents
EXECUTIVE SUMMARY:........................................................................................................................2
INTRODUCTION:......................................................................................................................................3
ACTIVITY BASED COSTING (ABC):.....................................................................................................3
Deficiency in the Activity based costing method:....................................................................................4
Implementation of ABC..........................................................................................................................5
Benefits of the Activity based costing system:........................................................................................6
A Comparison of Activity-Based Costing and Time-Driven Activity-Based Costing:................................6
Effort Choices between Group and Individual Tasks in Mixed Incentives..................................................7
Explanation of the Purpose of studies and the questions in the journal:......................................................7
Similarities in the Journals:.........................................................................................................................8
Dissimilarities in the Journals:.....................................................................................................................8
Outcome of the Study:.................................................................................................................................8
Conclusion:..................................................................................................................................................9
Works Cited.................................................................................................................................................9

EXECUTIVE SUMMARY:
From the past few years the many organisation failed to compete with the other companies in the
market. The reason for this failure is the wrong costing method and the failure in identifying the
expense related to the product. Many of the organisation fail to calculate the true cost of the
product alternatively the price of the product and the profit or attributable to the product. To
overcome this issue the costing tools are introduced which calculate the true cost of the products.
The two managerial journals are discussed have different methods and different approaches.
There are many accounting issues in the activity based costing and unable to meet the
requirement of the non production industry such as services industries. This is the reason of the
introduction of Times Driven Activity based costing. In this costing method the cost is assigned
to the product according to the time taken to produce. The other journal the incentives related to
the group and the incentives provided to the individual in the group are provided. The aim of the
report is to increase the productivity of the organisation by using the activity based costing
method.
INTRODUCTION:
In this report the activity based costing method is evaluated and its main functions. The
deficiencies in the activity based costing method and the introduction of the Time Driven activity
based costing is described in this report. With the help of this report the importance of the
costing tool in the calculating accounting is analysed. In this study the journal are also evaluated
on the managerial accounting and the study is presented. This report has three main parts which
are as follows:

The reason for the implication and its importance within the organisation is also evaluated. The
first in this part of the report the implementation of the TDABC technique is evaluated and is
compared with the ABC.

Effort Choices between Group and Individual Tasks in Mixed Incentives: in the second
journal the incentives relative to group are discussed. The incentives related to the group are
discussed along with the performance of the group. This is then compared with the incentives
provided to the individual. The choice of the group incentives present best result as compare to
the incentives awarded to the single individual.

Part 1

ACTIVITY BASED COSTING (ABC):

Activity based costing is managerial accounting tool that is used in the cost classification and
assigning to the product. From the past the companies are usually using costing methods which
are not valid in this modern world. The process of the production increased and caused
complexity. For that reason many of the companies failed to deal with their expense and not able
to meet the desired profit. To overcome such issue the Activity based costing method is
introduced which help the organisation in the calculation of the cost of the product and dealing
with the expense.

The cost related to the product is also identified so that it can be assigned to the product. To find
the cost of the product Activity based costing method applies systematic process. These methods
help in the identification of the indirect cost and the all direct cost which are associated to the
product. Activity based costing was implemented because the traditional costing method failed to
deal with the cost. Activity based costing method is used in the calculation of the product when
the product having complex production process and having complex activities. This is the reason
that Activity based costing method is only utilized in the manufacturing industries.

There are many production process and cost that are associated in the production process.
Activity based costing method deal with all these cost and assist in identification of the cost.
Sometimes companies not able to identify the true source of the cost and fail to recover such cost
because there is not such record but activity based costing system help in the identification of the
cost and allocate to the product in systematic manners. Some expense which are incurred during
the production process are identified which are extra cost, Activity based costing method also
assist in the decrease of such extra costs.

Organisation identifies the cost of each activity by using the activity based costing and
implement to the product according to their usage. This limits the resource and helps the
company in being efficient in the resources available. In this way the Activity based costing
method help the company in minimizing the cost that is inefficient in the production process. The
company is producing some product which is not effective and making loss but due to wrong
technique the organisation failed identifies such product, activity based costing method help in
the identification of the product.

By using such approach the company can easily identify the product cost effectively and also
identify the product contribution in the company very effectively. The main difficulty for any
company is the identification of the product cost and profit, using activity based costing method
this can be overcome and the company easily identify the profit figure in true and effective
manners.

Deficiency in the system:

In almost every system there are some draw backs. In Activity based costing method there is a
drawback which limits its usage outside the production industries. The ABC is only used in the
production induction and where many products are prepared repeatedly. Activity base costing
failed in the non production industries.

Elaborate the company Mission and Objectives:

The overall company objective is to increase the profit, for this purpose the company uses many
policies and strategies. It help in the identification of the employee which suits the task and
which are efficient in the production process. The company can also take effectives decision as
they have true profit information and their decisions are now more efficient and successful and
the chance of the failure is low. This system help in the identification of the cost which can be
removed if increasing the cost and decreasing the profit. Eliminate such cost company can reach
its targets and become leader in the market. The chance of the failure of such system is very
minor so the system helps in making decision and upper level management decisions.

Corporate strategies:

Management has all the information which are necessary in the preparation of the budget. Form
the past many organisations failed because they have false information of the product. Activity
based costing provide the true information so using true facts and the amount the company can
easily make decisions and can easily improves the productivity. The decisions which are vital
and used the data of the Activity based costing includes the pricing decision and many other
improvement in the production prices.

Fulfilling the strategies of the company:

For survival the company has to increase the profit continuously. The market is very competitive
and difficult to survive for such reason the company makes many strategies. By fulfilling such
kind of strategies the company can survive effectively. Two type of performance is evaluated in
the company performance the financial profit and the non financial performance. Activity based
costing method provide the information which is true so the cost which is incremental and extra
can be eliminated and the profit of the company can be increased efficiently. The strategies of
the company are only successful when they are prepared on the basis of the true information. The
information provided by the tools are true and efficient. The chance of the increase in the
company performance is very high and the failure in the company performance is very low.

Implementation of ABC
The implementation of the activity based costing method is simple and easy to understand by every
manager and this is the reason this is used in the decision making process. Following are the methods
which are used in the ABC:

 Indentify functional areas (First step)

 Analysis of the main activities of the product (second step)
 Allocation of the third indirect cost (third step)
 Cost driver allocation (forth step)
 In the final step the cost is assigned to each of the product.
 During the process the main activity of the product is to calculate the cost which is
decreasing the profit and eliminate such cost

Benefits of the Activity based costing system:

Activity based costing method is has following benefits:

 Easy to understand by every manager and help in the decision making process
 Help in improving the product and services in more accurate manners
 Provide the true information related to the price
 Improve the production process in quality and quantity

PART 2)

In this part journals are evaluated and the result of the journal is presented. The basic purpose of
the journal is to provide the knowledge of the managerial accounting and the purpose for the
costing.
A Comparison of ABC and Time-Driven Activity-Based Costing:
In the first journal the compassion of the activity based costing and the Time driven activity
based costing is described, the purpose of this journal is to provide the basic knowledge about
the activity based costing and about its deficiency and the implementation of the modified
technique. In this journal the full introduction of the both techniques are identified.

The basic purpose of the introduction of the activity based costing is the deficiency in the main
accounting system which is activity based accounting system. The results are evaluated
systematically and the numeric results are then investigated further. The main purpose of this
journal is to show the results how both techniques assist the management in the calculation of the
results. The main difference in the activity based casting is allocation of the cost.

The results of the journal show that Time driven ABC is modified technique and provide the
most accurate data. This trace the cost and the activity related to the product in efficient manner.
But this is depending on the size of the activity provided during the production; if the production
has high number of production then the activity based costing method is accurate. It use the time
in the calculation of the cost and the use of the quantity is not valid in this accounting method.
For the calculation of the Time Driven Activity based costing the time is used as the quantity of
the work and the cost is assigned as the usage.

Effort Choices Tasks in Mixed Incentives:

Incentives plays important role as, they increase the chances of success of the company. They
have both impact positive and negative impact. Incentives given on the executive level are
considered as both negative and positive depend upon the condition of the company. In this
journal the incentive related to the group and the individual task are evaluated as compare to the
incentives given to them.

Form the journal many companies data has been evaluated and the task from the group and the
individual is evaluated. It is evaluated that group perform more efficiently when performing
work and linked with incentives. But on the other hand the incentives given to the individual
does not show such motivation as shown by the group the reason is that in the group the amount
of the expertise is high. They work collectively and increase in the productivity as well as the
performance if the organisation has impact of it.

This is managerial tool which is used as to increase the productivity of the group or individual so
many of the tasks can be accomplished and many of the challenges can be fulfilled. In the journal
the importance is given to the group as they consist of many persons that consist of mix
individual and expertise and the chances of the success are also very important.
Explanation of the Purpose of studies and the questions in the journal:
The two Journals have the basis purpose how to increase the performance of the company. To increase
the performance and productivity of the organisation the journal are made. The organisation is concerned
about the profit. To assist the organisation in making the accurate decision the journals have asked the
following question in it.

A Comparison of ABC and TDABC:

The purpose of the journal is to provide the accurate tool which help in the calculation of the cost and the
expense. Other tools are not able to provide this and fail to provide accurate information. Following
question is part of the journal:

 Only Time driven activity based costing provide accurate information

 Activity based costing provide the accurate data

Effort Choices between Group and Individual Tasks in Mixed Incentives:

In this journal the basic purpose of the journal is to increase the productivity of the organisation with the
help of the employee. For such purpose the employee should be motivated. In the journal the impact of
the study on the single and the group is evaluated. Following questions are part of the journal:

 The group provides productivity in their work when incentives are related
 The individual provide more accurate efficiency when incentives are provided.

Common things in the Journals:

From the study it is considered that both of the journals are managerial tools. They are linked
with the performance of the company overall. The primary objective of the organisation is to
make profit for this purpose the tools are used by the company. The increase in the productivity
by using the ABC and the other method which can improve and increase the organisation
performance are the aim of the organisation. In the first journal the use of the activity based
costing method and the time driven activity based method is evaluated. It is effective tool and
show great impact on the company performance. In the second journal the impact of the
incentives are shown in the group and company performance. The aim of both journals is same
to increase the performance of the company.

Dissimilarities in the Journals:

In the journal there is much dissimilarity. Such as, the implementation of the time driven activity
based costing help in the company in term of financial benefit. The performance of the company
can be measured in term of money. While on the other hand, the incentives given to the group
and individual not show any financial benefit. The benefit is to increase in the performance and
the productivity of the company.
Outcome of the Study:
The outcome of the study is very important. The two journals are rich from the knowledge and
show great impact on them.

A Comparison of ABC and TDABC: from this study the use of the ABC method in the real
organisation and the calculation of the true costing method and impact of the implementation is
identified. The approach of the ABC is to calculate the cost in logical manner and efficient
manner so that it can be easily identified.

The importance of the TDABC is also evaluated in this paper and evaluated that the use of the
TDABC method is most accurate accounting tool in comparison with the ABC.

Effort Choices between Group and Individual Tasks in Mixed Incentives: from this journal
the importance of the incentives is identified. Incentives are directly related with the performance
as they are part of the individual incentives. It shows great performance and also shows great
impact on the organisation performance.

Conclusion:
In this report the main function of the activity based costing and the use in the real industry is
elaborated. For an organisation the true information of all expense and profit is necessary. The
reason is that company can increase in the productivity and devote all the intention toward the
performance of the company. From the past the organisation failed to measure the true cost and
true profit result shows that many corporate failure or due to not identifying the expense and not
able to recover expense from the product from which they relate. Activity based costing method
is the great result and many of the company are able to calculate the true expense as well as the
true source of income from the result. Such thing help in the decision making process. Decision
making process is very effective as this will devote all the direction toward the completion of the
target. If the target contain some deficiency in it and the information provided are not true figure
then organisation fail heavily.

On the other hand there are some deficiencies in the ABC which can be overcome through time
driven activity based costing method. The deficiency related to the activity based costing method
is not able to calculate the cost of the product which is consume time. The implementation of the
time driven activity based cost fulfills such deficiency in the tool.

In the last journal the importance of the incentives is considered. The group incentives are
considered as more effectives as they increase the productivity of overall group while the
incentives given to the individual not show much growth. The reason for such increase in the
performance is that in the group there are mix skills and expertise and the work done are very
efficient and very effective manners.
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