Expanding material flow cost accounting - Myassignmenthelp.Com

Question: Discuss about the Expanding material flow cost accounting. Answer: Introduction Cost accounting, popularly referred, as costing is the mechanism of capturing organizationsincurred cost in production. This identifies cost incurred in different steps of production (Schaltegger and Zvezdov 2015). This further includes the costs incurred in other activities of the organization, which includes services. Costing of an organisation can primarily be divided into three sections that are direct costing, indirect costing, and overhead costing (Zuberbieret al 2014). Costs incurred by the company, which can be related to a specific cost object are referred as direct costing. Some example of this cost products can be product, raw material, equipments departments etc. (Carli and Canavari 2013). Indirect cost the other hand is beyond the direct cost and does not supplement in production of any goods. Thiscost incurred is related to the services being provided by the company. Example of this type of costing can be telephone bill, house rent etc. that are indirectly by the compan y or maintaining their operation. Overhead cost and indirect cost are interred and overlapping. This is the ongoing expense of operating business (Drury 2013). Accountants in a business organisation can use various costing methods for accounting their costs. These methods are traditional costing, activity based costing and time driven activity based costing. These methods of costing are implemented in a bushiness organisation depending on the nature of the business. Organisation Background TPG Telecommunication Limited is Australias leading telecommunication service provider both within and outside the domestic boundary. The company was established in 1986as Total Peripheral Group in the Australian market (tpg.com.au. 2018). They later expanded outside of the Australian boundariesand acquired many small telecommunication providers such as IntraPower, iiNet, PIPE Networks and some over their venture over time. The companybecame 4th mobile operation in the Singapore marketin2016 (tpg.com.au 2018). The company has positioned themselves as fast, reliable cost effective communication service providers in the market. They attribute the people, products, network assets and innovation as the driving factor in the organization for attaining this position in the market. The company in their product portfolio provides a wide range of products to their diverse customers. They offer different products for the personal use, small business organisations, large corporate enterprises, and wholesale customers according to the need of individual customers (tpg.com.au2018). The products and services offered by the company for their diversified range of customers are ADSL2+, NBN,FibreOptic andEnternet broadband access, telephony services, Internet Protocol Television, SIM only Mobile plans andvarious business networking solutions. The company has established a self-owned end-to-end network infrastructure. This icorporaates 400 DSLAM enabled telephone exchanges across Australia, extensive metropolitan an inter-capital fibre optic networks and international PPC-1 submarine cable that connects Australia and Guam with onwards connectivity to Asia and USA (tpg.com.au2018). The ownership of carrier grade voice, data andinternet network infrastructure and self-mainte nance makes them capable of delivering exceptional performance across different level of the organisation. This further facilitates them in taking responsibility in the services offered to the customers.The self-owned infrastructure further enables them to enjoy greater profit margin while providinglow costservices totheircustomers. About TDABC Popular costing method activity based costing, which is widely incorporated by various organisations is the proposer of Time-driven Activity based costing. Failure of activity based costing is gave birth to the modified version of costing mechanism. TDABC can be considered as the modified version of ABC, which focuses on time instead of activity of an operation. Kaplan and Anderson developed TDABC, which potentially decreases the amount of data needed (Kaplanet al 2014). The costing method has minimizes the parameter into two and requires estimating of the two factors that are cost time per unit of capacity and unit time of activities. The first approach involves estimation of the practical capacity of the resources supplied as a percentage of theoretical capacity. In other words, this helps the managersin identification of actual time given by individual employee in the organization (Au and Rudmik 2013). It identifies the gap between the actual and the theoretical time allotted for a particular task, and later identifies the resource utilized for the identified time. After estimating the overall time required per activity and it is costing, the unit time per activity helps in identification of time taken for performing per activity (Au and Rudmik 2013). This helps in identifying the actual time taken for performing a particular activity by the employee. Features of TDABC The primary features that increases the efficiency of Time-Driven Activity-Based Costing are as follows: It reduces the time consumed in the process of costing by removing the need of subjective, interview and survey process for defining the resource process. The only variable used in TDABC is time, which can be gain using direct observation method, hence, making other lengthy processes irrelevant. It uses time equation in accounting the complexity in business process that reflects the time consumed for particular task. This further eliminates the need for multiple tracking activity in accounting. Reduces the processing time that was necessary for undergoing data review from the ERP system. Maintenance and update of capital cost rates and unit time estimation is easier in TDABC. This became possible using time equation. The time unit provide greater accuracy in representation of capacity compared to the traditional Activity-Based Costing. ABC method tends to represent overestimation of the cost of performing activities, which results into less accuracy in capital usage. Other benefits of using TDABC is that it helps eliminating the monthly personal survey and multitude transaction processing that was both time consuming and hectic for an accountant (Stout and Propri 2011). Difference between TDABC, Active Based Costing and Traditional Costing Traditional costing, Activity Based costing and Time Driven Activity Based Costing serves the same purpose in business accounting, however, largely varies from each other in the process. These methods are used for allocating indirect costs to products. These different methods of costing are used for estimating the overhead cost of a production and in assigning the costs to products based on the cost-driver rate. According to Mahaland Hossain (2015) the traditional costing is simple in nature and provides less accurate data, while compared to Activity based costing and time driven activity based costing. Traditional costing assigns overhead costs to products depending on the arbitrary average rate. Whereas, ABC costing is comparatively complex and considered to provided greater accuracy as identified by Rundora, Ziemerink and Oberholzer(2013), which relates indirect cost with the activities and later assigns them to products after evaluation of the products usage of the activity. TDAB C on the other hand relates the costing with the time consumed for the activity. Time consumed per activity helps in identification of the costing per unit. This is considered to provide greatest accuracy in the costing process as proposed by ker and Ad?gzel(2016) and helps reducing the complexity of the ABC system. Traditional Costing Traditional costing as narrated by Drury (2013) relate cost to product basing on the predetermined overhead cost. The overhead cost in traditional costing is treated as a single pool of indirect cost. This costing system is considered optimal when direct cost is greater than indirect cost. The traditional costing system being oldest of the three incorporates multiple steps in the costing process. They are: Identification of the indirect cost incurred by the organization Estimation of the indirect costs over a particular period Selection of cost driver with a casual link to the cost Estimation of the amount required for the cost driver for the particular period Calculation of the predetermined overhead rate Application of overhead to the products according to the predetermined overhead rate. Predetermined overhead rate is considered equal to the estimated overhead cost divided by the estimated cost driver amount. The primary benefits of traditional costing as stated by Drury (2013) are the simplicity and easier applicability. However, the limitation of the system in providing accurate information reduces its applicability in business organization. Activity Based Costing ABC on the other hand as stated by Estampeet al (2013) prioritizes activities associated with production before assigning cost to the activities for determining the cost of the product. The steps involved in ABC system are: Identifies the activities associated in the production and groups together in the activity pool Further analysis of the activities involved for eliminating the systematic inaccuracy Next step involves the cost assignment to the activity pool depending on the derived data from the former steps Calculation of the activity rate is the analysis of the activity in terms of real value. Each of the activities are put under currency value for identification of the overhead costing This step of ABC system assigns cost to the final product depending on the cost calculated over activity, pools, and rates. Final step is to evaluate the conciseness and coherence of the object cost. Time-Driven Activity-Based Costing This costing system focuses on time placing the activity in the second position in the importance chart. The primary concern is to prepare accurate time based algorithm that helps in cost identification (Ozyurek and Din 2014). The process involves: Estimation of the cost per unit of capacity Estimation of unit time per activity Deriving cost-driver rate depending on the above identification Cost assignment for the final product Applicability of TDABC on TPG Telecom The ABC model that is currently used by a large number of organization produces large amount of data of activities and drivers. This is both expensive and storage consuming, which requires greater hardware and software capacities (Damjanovski 2013). In addition, implementation of ABC system potentially increases costing of the company. The TDABC will considerably reduce the cost and consume less capacity in TPG telecommunications hardware and software. Besides the fact, the ABC is incompatible in constant updates for accommodating changing circumstances (Damjanovski 2013). TDABC on the other hand provides the company an opportunity to accommodate the change as it is necessary to operate in the international market with this wide range of product line as offered by TPG. The proposed TDABC method marks out the idle capacity of the resources and removes its integration in the costing, in which the tradition ABC system fails. However, this is not applicable for TPG as they do not suffer of considerable over-size or idle working time of the network equipment due to the nature of the industry it belongs (Damjanovski 2013). However, there is some variation regarding the traffic-basedutilization of specific switches and base stations in the telecommunication network. However, this situation is considered as normal in the industry and shall not be considered as unused capacity. However, TDABC can be implemented in case of headcount of the company. The traditional ABC system has the potential to work in the local level minimizing its applicability in the wider section (Damjanovski 2013). Size of TPG provides opportunity for the implementation of TDABC. Moreover, TPG being international organization requires TDABC for addressing their global operations. Reviewing the above aspects, the necessity for implementing TDABC in TPG is limited and the company can gain limited advantage in using TDABC. Though, this will help the company save significant cost incurred from implementing ABC and will also provide efficiency accounting their international business. Hence, implementation of TDABC will be beneficial for the company. Conclusion It is possible to draw conclusion from the above discussion that the efficiency of TDABC is greater compared to the other costing system discussed in the report. TDABC provides greater accuracy regarding the data due to the use of time unit and time equation in identification of the possible overhead cost. Moreover, this costing system found to be less time consuming compared to ABC system that integrates multiple number of process in determination of overhead cost. TDABC helps the organizations reducing time of costing by eliminating the steps used in ABC system. The report further identifies its greater efficiency in the manufacturing industry. It is easier to identify the overhead costing in the manufacturing industry due to the clear visibility of the production process and the nature of the product being delivered to the customers. However, this becomes difficult in implementing the costing system in service industry similar to the one of TPG Telecommunication as the production process and the tangibility of the products is less in the field. Though implementation of TDABC will bring limited benefits for the company, it has potential benefits in the saving cost for the company and help accounting for their widely spread international business. Reference Au, J. and Rudmik, L., 2013. Cost of outpatient endoscopic sinus surgery from the perspective of the Canadian government: a time?driven activity?based costing approach. InInternational forum of allergy rhinology(Vol. 3, No. 9, pp. 748-754). Carli, G. and Canavari, M., 2013. 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