Implementation of TDABC in SME: A Case Study

AuthorKamalkishor N. Agrawal,Ramesh R. Lakhe,,Ashwin B. Ganorkar
Date01 April 2018
Publication Date01 April 2018
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22327
Implementation of TDABC in SME:
A Case Study
Ashwin B. Ganorkar, Ramesh R. Lakhe, and Kamalkishor N. Agrawal
companies face ever-
increasing competi-
tion in today’s global
marketplace. Apart
from a few isolated
cases, the selling
price of a product
is predefined by the
market because cus-
tomers are not will-
ing to pay more than
a certain amount of
money for the prod-
uct. Consequently,
the achievable profit
is dependent on the
product costs. There-
fore, cost manage-
ment of the product
and systematic con-
trol of costs is essen-
tial for industries to
sustain in a competi-
tive environment.
Over the years,
many costing systems
are developed. Activity-based
costing (ABC) is considered
by many academics and prac-
titioners as one of the most
important innovations in
management accounting in the
twentieth century (Askarany,
2006; Askarany & Yazdifar,
2007; Gosselin, 2006; Kaplan
& Anderson, 2007; Smith,
Abdullah, & Abdul
Razak, 2008). ABC
helps the firms to
make more efficient
use of their resources
and produce criti-
cal decision-making
information, thereby
assisting firms to
achieve a better
cost-efficiency, com-
petitiveness, and
overall performance
in their business
activities (Jänkälä
& Silvola, 2012).
Therefore, many of
the big organization
had adopted ABC
for cost accounting.
ABC is pioneered
by Cooper (1988a;
1988b; 1990), Coo-
per and Kaplan
(1988), and Johnson
(1990). But Kaplan
and Anderson (2004)
have suggested that
many large organiza-
tions abandoned their ABC
project because of rising cost
and employee irritation. There-
fore, to address these problems,
Kaplan and Anderson (2004)
This article describes a procedure that allows
small-scale manufacturing industries to easily
adapt time driven activity based costing system.
This model is of two stages, the first stage con-
sists of seven steps and the second step consists
of three steps. The model was developed on the
basis of an intensive case study conducted at a
small-scale furniture manufacturing industry. The
model assigns the cost of overhead expenses such
as building rent, building maintenance, power
consumption, machine maintenance cost, and
chemical consumable on the activities. Thereafter,
the cost of activity is assigned to the product. The
complete process is explained using matrices.
This makes the cost-related calculations easy and
overhead costs are traced without difficulty. The
ease of use of the proposed procedure is illus-
trated using actual data from a small manufactur-
ing industry located in central India. Further, based
on this model a generalized equation is developed.
Results of the case study help the firm’s strategic
decision making and identify the opportunities for
profitability improvement. © 2018 Wiley Periodicals, Inc.
Editorial Review
88 The Journal of Corporate Accounting & Finance / April 2018
DOI 10.1002/jcaf © 2018 Wiley Periodicals, Inc.
introduce time-driven ABC
This article presents the
procedure to implement
TDABC in a small-scale manu-
facturing industry. Initially, the
concept of TDABC is discussed
along with the literature and
difficulties in implementation.
Then the need of the small-
scale industries is discussed.
Thereafter, the procedure is
proposed for implementa-
tion of TDABC in small-scale
industries along with the data
collection forms. Afterwards,
the case study is presented.
Finally, the results of the case
studies are discussed from the
management point of view to
take appropriate decisions.
Over the years many cost-
ing techniques are developed.
Earlier in 1980s, traditional
costing was used. But over a
period, with the increasing
manufacturing complexity,
traditional costing system was
not able to produce accurate
costing. Therefore, to deter-
mine accurate and reliable cost-
ing and to provide managerial
reports ABC was developed.
Further, based on ABC a new
TDABC approach was devel-
oped. Kaplan and Anderson
(2004) introduced an improved
approach called TDABC.
TDABC model simplifies cost-
ing process of ABC by avoiding
the need of interviewing and
polling staff to assign resources
to activities, before assign-
ing them to the cost objects
(orders, products, customers).
This model assigns resources
cost to the cost objects directly,
and it obeys an accurate frame-
work that only requires two
sets of estimations, where they
are simply calculated. First, it
calculates the cost of supplying
resource capacity. Second, the
capacity cost rate (cost driver
rate) is used to drive resource
cost down to cost objects by
estimating the demand for
resource capacity that each
cost object requires. Demeere,
Stouthuysen, & Roodhooft
(2009) and Stouthuysen, Swig-
gers, Reheul, & Roodhooft
(2010) have given the follow-
ing steps for implementing
1. Identify the various
activities (resource groups,
2. Estimate the total cost of
each activity.
3. Estimate the practical capac-
ity of each resource group.
4. Calculate the unit cost of
each activity.
5. Determine the time required
each time the activity is per-
6. Multiply the unit cost of
each activity by the time
estimate for the event.
The cost of the activity
consumed by the product is cal-
culated by multiplying the unit
cost of each activity by the time
which is required for the activ-
ity to be performed.
Research Using TDABC Model
in Manufacturing Industry
Bryon, Everaert, Lauwers,
and Van Meensel (2008) have
conducted study at pig farm.
They found that TDABC can
be used for guiding manage-
ment with the decision prob-
lem of switching to batch
farrowing and it is also useful
to quantify both the economic
and ecological impacts of a
strategic decision, and may
even be extended to sociological
features. Öker and Adigüzel
(2010) have discussed how to
use TDABC in a casting man-
ufacturing company. Further-
more, they said that, “TDABC
model is more appropriate and
easier for service companies to
implement than manufactur-
ing companies.” But TDABC
provides more relevant infor-
mation about capacity utiliza-
tion than standard costing
and product profitability is
the advantage of the sys-
tem. Stout and Propri (2011)
have implemented TDABC
with the support of ERP in
electronics company. They
found that, updating TDABC
model is easier than ABC.
de Arbulo, Fortuny, García,
de Basurto, and Zarrabeitia
(2012) have compared TDABC
with VSC in a lean manufac-
turing environment at auto
parts manufacturer. TDABC
is easier to use than ABC
and traditional full costing
in multiproduct/multiprocess
companies. TDABC can cap-
ture the cost of the different
products in the product mix.
TDABC calculates the cost of
a product accurately, whereas
value stream costing gives just
an average value. But they
found that, data collection for
TDABC is complex. Hon and
Chu (2012) have conducted
a study at aerospace preci-
sion casting factory located
in Taiwan. They found that,
the results of TDABC provide
valuable information to man-
agers for reducing waste in
their business endeavors.
Mortaji, Bagherpour, &
Mazdeh (2013) have proposed
a new mechanism for the
TDABC by utilizing the tri-
angular fuzzy number. They
have employed fuzzy logic to

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