This is a summary of an article by Michael S.C. Tse & Maleen Z. Gong. Activity-Based Costing had failed! See why, and find out what are in the shop to keep ABC's concept alive.

1. Summary
Modul 1 Reading 6F, Kelompok 1
Recognition of Idle Resources in Time-
Driven Activity-Based Costing &
Resource Consumption Accounting
Models
Michael S.C. Tse & Maleen Z. Gong
CMA-IPMI 2012 1

2. Prologue
Purpose of this paper:
 Presents an overview of TDABC and RCA
models;
 Examines implications of recognizing idle
resources in the two models on
developments & applications of cost
management systems.
CMA-IPMI 2012 2

3. Why had ABC “Failed”?
51% In 4 years 10%
Kiani & Sangelaji (2003) on Fortune
500
 Lack of integration between ABC-based cost
management model and other parts of
organizational information systems;
 Complexities of maintaining ABC models in
large organizations.
CMA-IPMI 2012 3

4. Two ABC Contenders
 As ABC fell short, a new search for other cost
management solutions started again in mid
1990.
 Two new costing models emerged: Time-
Driven Activity-Based Costing (TDABC) and
Resource Consumption Accounting (RCA).
Both have the same purpose, but very
different strategies.
 TDABC was proposed by Robert Kaplan in
2004, offering a simplification of ABC model.
 RCA was developed for computer-based cost
management system. Not simplifying ABC,
instead integrating it with ERP.
CMA-IPMI 2012 4

5. Common Key Feature
TDABC RCA
Integrates ABC into
Simplifies ABC
ERP
Both recognizes IDLE
RESOURCES in the
cost pools
CMA-IPMI 2012 5

6. Traditional ABC
Resource Activities Cost Objects
Pools
Wages &
Salaries
Standard
Admin
Depreciation
Assembl
y Deluxe
Energy
QC
Premium
Factory Supplies
How would this interrelationship look like in a
company with 40 Departments, 150 activities,
10,000 Orders, and 45,000 Line Items?
CMA-IPMI 2012 6

7. Time-Driven ABC
Directly allocating costs from Resource Pools
to Object
Resource Activities Cost Objects
Pools
Wages &
Salaries
Standard
Admin
Depreciation
Assembl
y Deluxe
Energy
QC
Premium
Factory Supplies
CMA-IPMI 2012 7

8. Time-Driven ABC
Directly allocating costs from Resource Pools
to Object
Resource Resource- Cost Objects
Pools Activity Cost
Drivers
Wages &
Salaries
Standard
Depreciation
Deluxe
Energy
Premium
Factory Supplies
Quantity-based resource-activity cost drivers are
derived by multiplying the unit cost of a resource
and its consumption for a unit of activity
CMA-IPMI 2012 8

9. RCA Model
Based on three interrelated conceptual
“Pillars”
Resources
Focused Cost
Management
RCA
Quantity- Complex
based Cost view of
Modelling nature of cost
#See page 5 &
6
CMA-IPMI 2012 9

10. RCA
Requires re-development of costing model
Resource Activities Cost Objects
Pools
Labour
Fixed
Wages & Standard
Salaries
Var Assembl
y
Machinery Deluxe
Fixed QC
Depreciation
Energy Var
Premium
Indirect Materials
Factory Var
Supplies
CMA-IPMI 2012 10

11. Approach on Idle Resources
 TDABC & RCA acknowledges the fact that
not all acquired resources are utilized  idle
resources exist.
 Costs associated with idle costs are not
allocated to any cost pool.
 This concept makes modifications of costing
model easier  a change in one resource
allocation rate has no impact on other
resource cost allocation rates.
 Cost of idle resources remains visible, and
treated as period cost, not a part of product
cost  more accurate product costing.
CMA-IPMI 2012 11

12. Conclusion
 TDABC & RCA represent two different
philosophies on development of cost
management systems.
 Despite the different philosophies, their
developments are strongly influenced by
traditional ABC model.
 By recognizing idle resources, both TDABC &
RCA make maintenance of costing model for
cost management systems easier.
 Also, provide more relevant and reliable cost
information to support decision making.
CMA-IPMI 2012 12

13. Extra Slides
CMA-IPMI 2012 13

14. Traditional ABC vs.
TDABC/RCA
Side-by-side Summary
Traditional TDABC / RCA
Collective resource cost analysis Individual resource cost analysis
 complex interdependence and  simpler, and independent
hard to maintain
Idle resources concealed Idle resources identified
Enables elimination of non value- Also enables management of
added activities value-added activities
CMA-IPMI 2012 14

15. TDABC vs RCA
Side-by-side Summary
TDABC RCA
System independent ERP compliant
Cost-based resource pools Technology-based resource
pools
All resource costs are variable Resource costs can be either
fixed or variable
No cross-allocation among Allocation among resource pool
resource pools – one stage is allowed – complex
interrelationship.
Activity-based cost allocation Both activity-based and volume-
based allocation are allowed
CMA-IPMI 2012 15