This is a summary of an article by Michael S.C. Tse & Maleen Z. Gong.
Activity-Based Costing had failed! See why, and find out what are in the shop to keep ABC's concept alive.
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Summary: Recognition of Idle Resources in Time-Driven Activity Based Costing & Resource Consumption Accounting
1. Summary
Modul 1 Reading 6F, Kelompok 1
Recognition of Idle Resources in Time-
Driven Activity-Based Costing &
Resource Consumption Accounting
Models
Michael S.C. Tse & Maleen Z. Gong
CMA-IPMI 2012 1
2. Prologue
Purpose of this paper:
Presents an overview of TDABC and RCA
models;
Examines implications of recognizing idle
resources in the two models on
developments & applications of cost
management systems.
CMA-IPMI 2012 2
3. Why had ABC “Failed”?
51% In 4 years 10%
Kiani & Sangelaji (2003) on Fortune
500
Lack of integration between ABC-based cost
management model and other parts of
organizational information systems;
Complexities of maintaining ABC models in
large organizations.
CMA-IPMI 2012 3
4. Two ABC Contenders
As ABC fell short, a new search for other cost
management solutions started again in mid
1990.
Two new costing models emerged: Time-
Driven Activity-Based Costing (TDABC) and
Resource Consumption Accounting (RCA).
Both have the same purpose, but very
different strategies.
TDABC was proposed by Robert Kaplan in
2004, offering a simplification of ABC model.
RCA was developed for computer-based cost
management system. Not simplifying ABC,
instead integrating it with ERP.
CMA-IPMI 2012 4
5. Common Key Feature
TDABC RCA
Integrates ABC into
Simplifies ABC
ERP
Both recognizes IDLE
RESOURCES in the
cost pools
CMA-IPMI 2012 5
6. Traditional ABC
Resource Activities Cost Objects
Pools
Wages &
Salaries
Standard
Admin
Depreciation
Assembl
y Deluxe
Energy
QC
Premium
Factory Supplies
How would this interrelationship look like in a
company with 40 Departments, 150 activities,
10,000 Orders, and 45,000 Line Items?
CMA-IPMI 2012 6
7. Time-Driven ABC
Directly allocating costs from Resource Pools
to Object
Resource Activities Cost Objects
Pools
Wages &
Salaries
Standard
Admin
Depreciation
Assembl
y Deluxe
Energy
QC
Premium
Factory Supplies
CMA-IPMI 2012 7
8. Time-Driven ABC
Directly allocating costs from Resource Pools
to Object
Resource Resource- Cost Objects
Pools Activity Cost
Drivers
Wages &
Salaries
Standard
Depreciation
Deluxe
Energy
Premium
Factory Supplies
Quantity-based resource-activity cost drivers are
derived by multiplying the unit cost of a resource
and its consumption for a unit of activity
CMA-IPMI 2012 8
9. RCA Model
Based on three interrelated conceptual
“Pillars”
Resources
Focused Cost
Management
RCA
Quantity- Complex
based Cost view of
Modelling nature of cost
#See page 5 &
6
CMA-IPMI 2012 9
10. RCA
Requires re-development of costing model
Resource Activities Cost Objects
Pools
Labour
Fixed
Wages & Standard
Salaries
Var Assembl
y
Machinery Deluxe
Fixed QC
Depreciation
Energy Var
Premium
Indirect Materials
Factory Var
Supplies
CMA-IPMI 2012 10
11. Approach on Idle Resources
TDABC & RCA acknowledges the fact that
not all acquired resources are utilized idle
resources exist.
Costs associated with idle costs are not
allocated to any cost pool.
This concept makes modifications of costing
model easier a change in one resource
allocation rate has no impact on other
resource cost allocation rates.
Cost of idle resources remains visible, and
treated as period cost, not a part of product
cost more accurate product costing.
CMA-IPMI 2012 11
12. Conclusion
TDABC & RCA represent two different
philosophies on development of cost
management systems.
Despite the different philosophies, their
developments are strongly influenced by
traditional ABC model.
By recognizing idle resources, both TDABC &
RCA make maintenance of costing model for
cost management systems easier.
Also, provide more relevant and reliable cost
information to support decision making.
CMA-IPMI 2012 12
14. Traditional ABC vs.
TDABC/RCA
Side-by-side Summary
Traditional TDABC / RCA
Collective resource cost analysis Individual resource cost analysis
complex interdependence and simpler, and independent
hard to maintain
Idle resources concealed Idle resources identified
Enables elimination of non value- Also enables management of
added activities value-added activities
CMA-IPMI 2012 14
15. TDABC vs RCA
Side-by-side Summary
TDABC RCA
System independent ERP compliant
Cost-based resource pools Technology-based resource
pools
All resource costs are variable Resource costs can be either
fixed or variable
No cross-allocation among Allocation among resource pool
resource pools – one stage is allowed – complex
interrelationship.
Activity-based cost allocation Both activity-based and volume-
based allocation are allowed
CMA-IPMI 2012 15
Hinweis der Redaktion
SCM involves:Some ideas which are fully consistent with the management accounting paradigm, but are not well implemented today (‘today’ means 1989, mind you), such as Activity-based CostingSome ideas are largely outside the scope of the conventional paradigm, e.g. Cost of QualitySome ideas which are inconsistent with the conventional paradigm, e.g. full cost is preferable to variable cost
Mgt accounting takes value added perspective: maximize the difference (value added) between purchases & salesValue Added perspective is ‘start too late (purchase), end too soon (sales)’ misses opportunity to exploiting linkages with suppliers as well as customers.Missing value chain concept many problems misunderstood, many opportunities missed.
Mgt accounting takes value added perspective: maximize the difference (value added) between purchases & salesValue Added perspective is ‘start too late (purchase), end too soon (sales)’ misses opportunity to exploiting linkages with suppliers as well as customers.Missing value chain concept many problems misunderstood, many opportunities missed.