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Managerial Accounting Assignment

The company has started its operation with the name NSW Grain Elevator Board which was established by NSW government to modernize the grain handling in the year 1916 and further and has later become Graincorp. At present, the company is operating 180 elevators which are spread over 3000 KM with the storage capacity of around 20 million tonnes. The company business is integrated around three-grain activity which are marketing, storage & logistic and processing. The company key focus is on wheat, canola, and barley and suppliers grain and process grain product to the customer at both domestic as well as international Level (Graincorp, 2018). The company is currently operating with four segments which are

  • Graincorp storage and logistic
  • Graincorp marketing
  • Graincorp malt
  • Graincorp oil

The storage and logistic segment which provide CropConnect service which is online cash market of the company and provide GrainTransact is the company grain stock system. The marketing segment is engaged in the business of buying and selling of grain product whereas malt segment supplies malt to a craft brewer, distiller, and global brewer. The oil segment supplies refined edible oil which is used in both food and non-food product (Graincorp, 2018).

 

 

Time-Driven Activity-Based Costing

The implementation of activity-based costing in the allocation of business overhead became popular over the period of time. With the growth and processing of this technical structure, it is been evaluated that there are lots of troubles faced by the organization. The certain process has become a costly and time-consuming activity for the managers working on the cost allocation job. The need and requirement of time driven activity-based costing has arisen in order to curb the data requirements and time for preparation of cost sheet.

In this par ........

he company business is integrated around three-grain activity which are marketing, storage & logistic and processing. The company key focus is on wheat, canola, and barley and suppliers grain and process grain product to the customer at both domestic as well as international Level (Graincorp, 2018). The company is currently operating with four segments which are

  • Graincorp storage and logistic
  • Graincorp marketing
  • Graincorp malt
  • Graincorp oil

The storage and logistic segment which provide CropConnect service which is online cash market of the company and provide GrainTransact is the company grain stock system. The marketing segment is engaged in the business of buying and selling of grain product whereas malt segment supplies malt to a craft brewer, distiller, and global brewer. The oil segment supplies refined edible oil which is used in both food and non-food product (Graincorp, 2018).

 

 

Time-Driven Activity-Based Costing

The implementation of activity-based costing in the allocation of business overhead became popular over the period of time. With the growth and processing of this technical structure, it is been evaluated that there are lots of troubles faced by the organization. The certain process has become a costly and time-consuming activity for the managers working on the cost allocation job. The need and requirement of time driven activity-based costing has arisen in order to curb the data requirements and time for preparation of cost sheet.

In this particular approach of costing, cost per unit is been determined in the terms of time that is been incurred in manufacturing the product or delivery of services. The complete overhead is been distributed on the basis of time ridden factor. Here in part from the traditional cost driver, time is the key basis for cost distribution (Kaplan and Anderson, 2007).

Requirement of TDABC

It basically requires estimation of certain parameters. Some of them are depicted as follow –

This is the most appropriate method of distributing the cost and rather it enhances the decision-making ability of the cost accountants. The main task that is needed to be worked out in this approach is to develop a time driven algorithm which will work out as a template for all the other overhead in the industry. This approach not only saves the resource requirement of the organization but also it helps in saving the time as well. Anderson and Kalpan were the main key founders of the technique of TDABC. They worked out the lacking of traditional activity-based costing process and reformed it to a new process system.

The major key hurdles that existed in the existing process of activity-based costing is been reduced through this approach (Hoozée and Bruggeman, 2010). This newly developed technique is now placed in the current working process by many of the companies. The additional benefits of TDABC are been bulleted as follows –

Enhanced accuracy in cost allocation – When an organization is dealing with multiple products and incurring multiple overheads the main task is to allocate the overhead more accurately. This is more crucial in making the decisions and evaluating the per unit cost of the product. This particular technique has improved the capabilities of the managers in working out the same.

Pocket-friendly approach – Another most important benefit of this approach is that it reduces the expense part of the organization while putting in comparison to the traditional ABC or traditional single recovery rate systems.

Forecast the demand for the resource – The approach of TDABC not only distributes the overheads more accurately but also determines the future requirement of resources in the current system process.

Enhances the opportunity for innovation – This method is not bounded by fix approach. Rather it is open in determining opportunities and it is ready to adapt the system. This approach of the TDABC helps the business organization in leading towards success and growth (Shander, et. al., 2010).

The features of time driven activity-based costing are been displayed as follows

  • The particular model of TDABC can be easily implanted in the current business process and the data outcome of the model can be easily estimated.
  • The change that is been implanted due to change in the current processes can be identified and reflected.
  • The most qualitative feature of TDABC is that if the firm is currently utilizing the CRM systems or transactional ERP, then data can be fed from that as well.
  • Even if there are millions of transactions, the technique of TDABC can easily process and deliver the output more quickly and on a real-time basis. In another approach the process of TDABC is scalable that is it can be adjusted for both small end and large end processes.
  • The tool and technique of TDABC can internally enhance the resource capacity in need and transfer the capacity for the management use in case of availability of unused capacity.
  • Without enhancing the overall existing complexity of the model the TDABC technique can make full use of time equation that consists of terms like changes in behavior in customer level and orders variations (Porter, 2009).

Difference between TDABC and Activity Based Costing

The traditional activity-based costing uses the transaction cost driver for instance number of invoice processed on the other hand TDABC make the use of the duration cost driver which is the major difference between the two approaches. The TDABC mainly consider cost estimate of involved resources and the unit time of each of the activity which is assigned to each of the product or customer. The first step of both the process is very much similar in which cost of the resources are grouped together in a logical way is calculated i.e. related to the activity or set of related activity. The ABC approach also determines the practical capacity of the resources supplied which shows that all the resources are utilized to its fullest extent. In the real life, it is hard to determine practical capacity as it is always below the theoretical capacity and is generally accepted at 75 % to 80 % of the normal capacity.

The next step in TDABC is to determine the time which is required to perform each of the activity which is not the part of the tradition ABC approach. The time taken of each activity can be estimated by observing or discussing with those who are working. There is always a difference between the costs calculated from both the method as in traditional method nonproduction time is allocated to cost of the product but is not the part of the cost under the TDABC. Also, many of the times activities are not homogeneous even though they fall under the same pre-defined area in such cases TDABC system call for time equation (Shander, et. al., 2010).

The TDABC provides the simple way for the application of activity based costing approach and only consider one cost driver which implies that cost of labor and the labor component is driven by time. This way of calculation is not feasible in all the cases as in many industries non-labor component dominate cost pool. Also, the TDABC doesn’t allocate the total cost to cost object which provides more information as a manager is informed about the cost of product and services with supplied resources.

The table showing key difference between both the methods

Basis

Time-driven activity-based costing

Activity-based costing

Accuracy

The cost estimated through this approach is highly accurate as it considers the actual production time.

This method also provides accurate cost but ignore certain wastage of time when the employee is not productive at the time of working.

Implementation

This method is easy to apply and can be easily applied to current ERP system (Porter, 2009).

This method is hard to update in the current ERP system of the company.

Determining cost

Identifying cost is easy in this system as it considers the entire factor at the time of determining the cost.

Hard to determine the cost of the updating process is pretty much slow.

Capacity

The method can easily handle the high number of the transaction.

The transaction capacity of the method is not much fast.

 

Suitability of Time-Driven Activity-Based Costing in Graincorp

Currently, Graincorp Company is dealing out with multiple projects and operation which utilizes overhead on a distributed basis. It is important for the company to distribute the overhead in the correct and most accurate manner. This is needed to justify the cost allocation process of the company. All the four segments of the company including storage, marketing, malt, and oil is dealt in a single process at a certain extent. There is a great need for incorporation of a proper overhead allocation system.

The current model of activity-based costing in the organizational system is difficult to operate due to its complexity and high time consumption. TDABC is the extension and modified approach to activity-based costing. It will not be difficult for the company to incorporate changes. The current company’s overhead cost is on the higher hand so management must workout to incorporate changes and implant a better model for cost allocation (Kaplan and Norton, 2008). TDABC tries to ascertain those costs which are distributed unevenly in the traditional method and allocate to the right department or product.

As there is additional key facility provided the new system that it can directly implant the accounting and cost data from the current ERP system of the business. This will reduce the time taken by the team, on the other hand, it will reduce the cost as well. After checking the current costing system of Graincorp company group it is been analyzed that there is great need of reformation. The current process includes the utilization of excel based costing model. In this model total port cost of the group is determined annually on the basis of weekly timesheets. This approach hinders the decisions of the cost accountant and ultimately affects the overall productivity of the company (Graincorp, 2018). There will be an improvement in the overall process and management system of the company if proper systems and cost models are fixed at its place.

 

 

Conclusion

It is greatly required to adopt new technologies and models to stay updated in the external market. Every technique has its own pros and cons. But with the passage of time, there is continuous improvement in the systems. Issues in the traditional costing system gave birth to the ABC system. Now TDABC system has been formed to remove the flaws of the current technique. In the current approach, the analyst has taken the Graincorp group to create better understanding and needs of the TDABC. Along with the initial brief about the company, the researcher has explained about the key term of TDABC along with its features. Towards the next part of the project, an analyst has referred to the difference between the newly developed system and traditional costing approaches. By analyzing and reviewing this technique it is been observed that the current approach of TDABC is best in current time.