An organisation’s management makes decisions based on the cost and profitability of its products or services. The article ‘Implementing Time-driven Activity-based Costing (TDABC) at a Medium-sized Electronics Company’ suggests that the TDABC model derived from the traditional ABC model is useful for effectively analysing an organisation’s costs and profitability. The TDABC model would be an effective decision making tool for Hotel Babylon.
This article examines the feasibility of TDABC in small to medium-sized organizations using a pilot implementation of this system in a company called XYZ. TDABC requires two steps of calculation: first, the capacity cost rate is calculated (this is equal to the cost of capacity supplied divided by the practical capacity of resources supplied); second, demand for resource capacity is estimated in minutes (Stout & Propri, 2011).
The article illustrates that there was a profound discrepancy in the costing and profitability data between the TDABC and ABC models by comparing these two models in two activities of XYZ Company. The TDABC system can obtain the processing times under direct observation in less time than ABC. The TDABC system also provides more accurate information than ABC because it measures capacity of resources, like personnel and facilities, using time as the cost-driver. In contrast, ABC assigns costs to products regardless of variations in consumer requirements (e.g. a special service may require more staff time to carry out). Finally, TDABC can be integrated with a company’s Enterprise Resource Planning (“ERP”) system and easily updated and maintained through the ERP system.
TDABC is strongly recommended for hospitality industries, like hotels. We believe that the implementation of TDABC by Hotel Babylon will result in significant improvements in the management team’s decision-making information and, ultimately the decisions it makes.