The Rutledge Companion to Cost Management - MyAssignmenthelp.com

Question: Discuss aboutThe Rutledge Companion to Cost Management. Answer: Introduction The report is being prepared to identify the concept of Time-Driven Activity-Based Costing and its features. Along with this, it will explain the difference between Time-Driven Activity-Based Costing, Traditional Costing, and Activity-Based Costing. Further, the report will assist Volkswagen Company a client of management consultancy firm in identifying whether the Time-Driven Activity-based Costing is appropriate for their company's environment and processes or not. Background of Volkswagen Company The Volkswagen AG is internationally known as Volkswagen Group. It is a German company deal in the manufacturing of automotive automobiles and has it's headquartered in Wolfsburg, Germany. Commercial and turbomachinery are designed and manufactured by this company and along with this they also offer related services such as fleet management, leasing, and financing. In 2016, the company overtake the Toyota Company and became the largest automaker in the world by sales. For over two decades it has been successful in maintaining Europes largest market share. In 2016, the company was declared as world's second-biggest manufacturer vehicles in the automobile industry by the report of Organization Internationale des Cosntructeurs dAutomobiles. According to the production volume, the second biggest automobile manufacturer is Volkswagen Group, behind Toyota. The passenger cars sold by Volkswagen Group under the Lamborgini, SEAT, Bentley, Skoda, Audi, Volkswagen marques, Porsche, and Bugatti; marques MAN, Scania brand under commercial vehicles and Ducati brand under motorcycles. Mission of Volkswagen Group The mission of the group is to offer vehicles with safe, attractive and environmentally sound features, which can survive in a competitive and tough market and set standards in the world. Marketing Strategy of Volkswagen Group The major focus of the company is towards increasing their core business by enhancing productivity and decreasing production cost. In order to achieve following goals, the company is concentrating on various strategies such as divestment of non-core segments, new models introduction, and restructuring. The aim of the Volkswagen Group is to provide products with good quality, safe environment, and enhanced productivity. The company has adopted Double marketing strategy for the brand positioning. The meaning of Double marketing is not spreading numerous messages in a single campaign, but various messages in multiple campaigns are promoted parallel. The company who followed this strategy is Coke due to the presence of high budget of marketing. In that campaign, various ads were promoted at the same time but the outcomes of those campaigns were not positive. The concentration of Volkswagen Group is on the easy obtainability of the vehicles for this they have established 44 manufacturing sites in various countries of the world. Products branding in different sections of manufacturing lines is the Volkswagen Groups marketing strategies. Technology of Volkswagen Group Blueprinting technology is used by Volkswagen Group which means the science of engine reconstructing. In the blueprinting process balancing, carefully fitting, and measuring is being performed which create an engine for performance enhancement. The Blueprinting process involves setting all receiving the engine to its best value. The technologies which are used by the Volkswagen Group are environment-friendly and for this, they utilize recycled and recyclable ingredients whenever possible. These strategies of the company help them in increasing their market share, trust, and loyalty of the customers. Overview of Time-Driven Activity-Based Costing The time-Driven Activity-Based Costing method is implemented in order to overcome the difficulties faced by the traditional ABC in changing the environment and to grab the full activities complexity. Anderson and Kaplan are the developers of the new method or approach for ABC and named it as Time-Driven Activity-based Costing. Under this approach, time plays important role in distributing resources to the cost objects. Though conservative ABC constantly had the dimension to make use of cost driver i.e. time, which perform a different role in ABCs new version. Traditional ABC method apply duration drivers in the second stage of a cost allocation process, whereas the new approach uses the time to drive costs directly from resources to cost objects, passing over the stage of first assigning a department's resource costs to the multiple activities the department performs (Janes and Succi, 2014). Therefore, with Time-Driven Activity-based costing, resources are not allocated to particular activities; they are shared at a greater level. For every section or procedure, costs of the resource are assigned directly to the cost objects with the help of two estimates set and they are - the process time and cost per time unit. In place of cost per time unit capacity cost rate can be used and process time can be calculated by time equation. In this method, capacity cost rate is calculated first as overhead is divided by applied capacity. The resources cost delivered to the operating department comprises of numerous elements: employees, equipment, indirect labor, supervision, technology and equipment, possession and other various indirect and support resources (Kaplan and Anderson, 2017). The applied capacity which has been provided is the available time for creative work and can be acquired by eliminating inevitable ineptitudes from the hypothetical capacity; according to the rule of thumb rule, it is normally expected to be 80 to 85 % of hypothetical capacity. Though capacity is frequently measured in hours or minutes delivered, along with this it can also be evaluated in other elements, such as gigabytes, weight or space. It must be noted that the cost rate of the department is usable only if the resources mix delivered is almost same for every action and deal executed within the section of the business. If a department executes numerous procedures, each demanding various resources, then the organizations section must decompose operations of the department into more than two processes and evaluate cost rate of separate capacity for every process (Kaplan and Anderson, 2007). As a final point, superior treatment is needed for the handling of resources seasonal or peak capacity. More precisely, the slack periods capacity cost should be the capacity that will be essential if only the demand of the slack-period were to be achieved; the cost rate of capacity in the peak months must be more costly and contain both the cost of delivering capacity throughout the peak months along with the cost of capacity resources delivered, but not needed, for the period of slack-demand. Second, time equation is used in the Time-Driven Activity-based Costing in order to estimate the usage of resources and cost of assigned resources to the activities which are performed and processed transactions. A mathematical equation which states the required time in order to perform a definite activity as a task of numerous time drivers, which can be distinct, dual or continuous variables is known as Time equation (Namazi, 2016). For every transaction, this type of time equation is utilized to define the required time to accomplish the activity. Officially, the expected deal time based on k noticeable time drivers is stated as: Tk = B0 + B1 X1 + + Bk Xk with Tk = expected time for a specific transaction; B0 = expected basic time, provided by the employees; Bi = estimation of time of driver i, provided by the employees, with i= 1,.,k; Xi = volume estimation of time driver i, as stated by the computer built information system of the company, with i= 1,,k. (Mitchell and Nrreklit, Jakobsen, 2013) Features of Time-Driven Activity-Based Costing The Time-Driven Activity-based Costing method is very precise and gainful model which is fast, low-cost, and easy to construct. Another feature of this method is a combination of the comprehensive transactional data is obtainable from ERP and system of customer relationship management. It is a model which helps in recognizing opportunities for the procedure competencies and capacity supervision. A model of costing is depending on the transactions precise of orders of individual, procedures, customers and suppliers. Another feature of this method is predictions of the demands of resource, permitting companies to budget for the needed capacity in order to handle the production and sales assessments in their tactical plans (Weirich, 2017). Time-Driven Activity-based Costing is simply accessible across extremely varied and multifaceted enterprises by accessible software presentations and database technologies. It is a model which is easy and reasonable to update as variations arise in course competencies and cost of the course. It is considered as a common method for profitability and cost management which can be utilized in all type of industries with difficulty in channels, processes, customers, segments, and products, and huge expenditures for capital and people. Differences between Time-Driven Activity-Based Costing, Traditional Costing, and Activity-Based Costing Time-Driven Activity-Based Costing Traditional Costing Activity-Based Costing Time-Driven Activity-based costing helps in recognizing every department's capacity and assigns the capacity cost of the combined resources over the cost object established on the required time to implement an activity. Traditional costing is the factory overhead allocation to products depending on the production resources which are consumed. In this method, overhead is frequently applied depending on the number of hours consumed of direct labor or machine hours used (Wilkinson, 2013). Activity-based Costing method which recognizes actions in an organization and allocates the cost of every activity with all services and products resources according to the definite consumption by each (Coulter, McGrath and Anthony, 2011). Time-Driven Activity-based Costing gives importance to the time drivers for allocating costs to services and products. Traditional Costing makes use of distinct pool overhead and is not capable to compute the accurate cost (Hayden, 2017). Activity-based costing gives importance to cost drivers for allocating costs to services and products (Kaplan and Anderson, 2006). This method is less expensive as compared to other methods and includes all distinct features of specific action into the one-time equation, therefore saving time. This method invalids the other important cost drivers that may add to the items cost (Johnson, 2018). This method is very costly as well as time-consuming to sustain and appraise for new circumstances in company's exercise. Time-Driven Activity-based costing accordingly takes into account the description of the activity which affects the costs (Markovi? and Rako?evi?, 2014). In traditional costing, the production cost is determined by the company after the production of the product (Jilani, 2018). In Activity-based Costing, the product's cost or value is defined by the feedback of the customer and range of the pocket. Suitability of Time-Driven Activity-Based Costing for Volkswagen Company The Volkswagen Company is consisting of various departments and units who perform numerous task or activities in order to increase productivity and fulfill the demand of their customers. Time-Driven Activity-based Costing is a new approach which identifies the required time units to execute an activity, service or process. This method involves less expense on its installation and maintenance. The company does not need to make extra expenses on this method. The distinctiveness of this method is that it makes use of time equation in order to evaluate the time consumed on every activity. The Time-Driven Activity-based Costing implements multiple time driver methods which will capture the difficulties of the Volkswagen Company in a better way (Gill, 2017). Conclusion Time-Driven Activity-Based Costing is very effective and inexpensive as compared to other methods of costing. The important aspect of this method is that it takes into account the most important cost driver i.e. time. The above report has provided the detail description of the Volkswagen Group along with the concept of Time-Driven Activity-based Costing and its features. It has also explained the difference between Time-Driven Activity-based Costing, Traditional Costing, and Activity-based Costing. Further, the report has also reflected the reasons why Time-Driven Activity-based Costing method is suitable for Volkswagen Group. Volkswagen is well-known and one of the leading automobile companies in the world, which involve various process and activities in its business operations. Therefore, Time-Driven Activity-based Costing is very beneficiary for this company. References Mitchell, F., and Nrreklit, H., Jakobsen, M., 2013, The Routledge Companion to Cost Management, Routledge. Kaplan, R.S., and Anderson, S.R., 2017, Time-Driven Activity-Based Costing, Accessed on: 11 January 2018, Accessed from: https://hbr.org/2004/11/time-driven-activity-based-costing Kaplan, R.S., and Anderson, S.R., 2006, Time-Driven Activity-Based Costing, Accessed on: 11 January 2018, Accessed from: https://hbswk.hbs.edu/item/time-driven-activity-based-costing Gill, S., 2017, Cost and Management Accounting: Fundamentals and its Applications, Vikas Publishing House. Janes, A., and Succi, G., 2014, Lean Software Development in Action, Springer. Markovi?, A., and Rako?evi?, S.B., 2014, Proceedings of the xiv international symposium symorg 2014: new business models and sustainable competitiveness, FON. Kaplan, R.S. and Anderson, S.R., 2007, Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, Harvard Business Press. Hayden, A., 2017, Activity-Based vs. Traditional Costing, Accessed on: 11 January 2018, Accessed from: https://quickbooks.intuit.com/r/pricing-strategy/activity-based-vs-traditional-costing/ Jilani, 2018, Difference Between ABC and Traditional Costing, Accessed on: 11 January 2018, Accessed from: https://www.differencebetween.net/business/finance-business-2/difference-between-abc-and-traditional-costing/ Johnson, R., 2018, Traditional Costing Vs. Activity-Based Costing, Accessed on: 11 January 2018, Accessed from: https://smallbusiness.chron.com/traditional-costing-vs-activitybased-costing-33724.html Wilkinson, J., 2013, Activity-based Costing (ABC) vs Traditional Costing, Accessed on: 11 January 2018, Accessed from: https://strategiccfo.com/activity-based-costing-abc-vs-traditional-costing/ Namazi, M., 2016, Time-driven activity-based costing: Theory, applications and limitations, Iranian Journal of Management Studies, 9(3), pp. 457-482. Weirich, T., 2017, Why is Time-Driven Activity-Based Costing such a game changer? Accessed on: 11 January 2018, Accessed from: https://finance.toolbox.com/blogs/torstenweirich/why-is-time-driven-activity-based-costing-such-a-game-changer-100110 Coulter, D., McGrath, G., and Anthony., 2011, Time-driven activity-based costing, Accessed on: 11 January 2018, Accessed from: https://www.gaaaccounting.com/time-driven-activity-based-costing/ Szychta, A., 2010, Time-Driven Activity-Based Costing in Service Industries, Accessed on: 11 January 2018, Accessed from: https://www.researchgate.net/publication/267373766_Time-Driven_Activity-Based_Costing_in_Service_Industries