Time Driven Activity Based Costing (TDABC) Model for Cost Estimation of Assembly for a SSI

Time Driven Activity Based Costing (TDABC) Model for Cost Estimation of Assembly for a SSI

Ashwin Bhimrao Ganorkar (Priyadarshini Bhagwati College of Engineering, Nagpur, India), Ramesh Ramchandra Lakhe (Shreyas Quality Management System, India, Nagpur, India) and Kamalkishor N. Agrawal (Shri Ramdeobaba College of Engineering and Management, Nagpur, India)
DOI: 10.4018/IJPMAT.2018070104


Costing is an important issue in a competitive world. Many companies had adopted TDABC for better cost visibility. Assembly is very common activity in the small scale industries (SSI). In a SSI, many operations like riveting, drilling, fastening, loosening and tightening, hammering, labeling, aligning, etc. are carried out at the time of assembly. Also the sequence and the time of the operating vary for each product. Therefore, it is difficult to estimate the cost of complex assembly. This paper proposed a time driven activity based costing (TDABC) model to estimate the cost of assembly for SSI. TDABC uses time equations to estimate the time required for an activity. A new approach to develop the time equation using maynard operation sequence technique (MOST) is presented. This paper also presents the modification in the time equation to handle the complexity of the activity. The application of the model is presented with the case study. The cost analysis helps to identify the opportunities for low cost assembly solution.
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Theoretical Background

ABC was first designed for manufacturing processes (Wegmann, 2010). Using ABC can lead to classifying activities as value-added and non-value-added and allow for the elimination of the non-value-added activities (Gunasekaran & Sarhadi, 1998). Therefore, ABC is a cost accounting system from the perspective of operational process. According to Hilton (2005), “ABC is a two stage procedure used to assign overhead cost to products and services produces”. In the first stage, costs are assigned to an activity based on a cost driver. In the second stage, costs are allocated from the activity to a product based on the product’s consumption of the activities. Therefore, many authors (Merchant & Shields, 1993; Roztocki & Needy, 1999; Cohen, Venieris, & Kaimenaki, 2005) have said that ABC provides more accurately cost data and information about the origin of data. Kaplan (1998) claimed that, if ABC was not successful in an organization, it could simply be explained by poor management of the ABC project. But Kaplan & Anderson (2003) agreed that because of high implementation costs and employees were irritated many organizations were abandoning their ABC model. Many researches (Carli, Canavari, & Grandi, 2014; Herath, Wickramasinghe, & Indrani, 2010) found that ABC is more complicated and requires more efforts for implementation. Further Gosselin (2006) have given following reasons for failure of ABC:

  • High implementation cost

  • Information technology inadequacy

  • Difficulties in linking cost drivers to individual products

  • Amount of work involved in comparison to the benefits resulting from ABC

  • Difficulty of collecting quantitative information on cost drivers

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