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Time Driven ABC

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  • Pages: 2
  • Word count: 421
  • Category: time

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Time Driven ABC costing is more superior to the traditional method in many different ways. Overall there are many negatives to the traditional system including its higher cost, low accuracy and is an extremely complicated system. The time driven ABC costing has many benefits including its lower cost, ease of implementation, higher accuracy and the larger scope of its models. Traditional ABC costing has been used for a very long time but with the introduction of modern computers it allows for Time driven to be a much more effective cost system. The traditional cost system is quite expensive and time consuming because it requires a lot of people to maintain and gather the necessary information to try to create an accurate cost system. Due to the time consuming nature of the system it is infrequently updated and leads to inaccurate cost estimates. Also when information was gathered from employees many employees did not consider the time spent in a nonproductive fashion. So many cost drivers were created under the notion that employees were working at full capacity. Overall the traditional cost system does not even come close to matching the accuracy of Time Driven ABC costing.

Time Driven ABC costing is superior to traditional costing mostly because of its increased accuracy. It is much easier to implement because the only factors that it requires is the cost rate of supplying resource capacity and the consumption of the resource capacity by the products or services. Time Driven does not require that individual employees be interviewed and in turn does not require as many employees. It also makes it cheaper because now the company does not need as many ABC costing employees and also interviews take time away from when workers could be doing something more productive. These 2 factors make Time Driven costing much cheaper than its counterpart. The same costing system also does not include unused capacity in determining its different rates and helps create more accurate costs. It is also much easier to update because they don’t have to re-interview employees but instead they estimate the new unit times for a specific activity.

Since unused capacity is not included managers can then use information to determine a way to lower it or use it to expand their operations. Time Driven ABC costing provides quick and accurate information that traditional ABC costing could never provide.

Overall Time Driven ABC costing is more superior mostly due to its increased that allows for better decisions to be made.

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