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Week 3 DB1 Time-Driven Activity-Based Costing (ABC)

Time driven activity based cost is considered a pull

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Time-driven Activity-Based Cost is considered a “pull” model of costing. This costing system starts with estimates of two areas, which are the units of time required to perform an activity and the cost per unit of time. Next, it multiplies this information by the quantity of the work product. This costing system is considered to be better since it removes the use of surveys and can effectively and efficiently account for all activities associated with processing orders. Therefore, the costs are minimized and information pertaining to activities associated with daily operation is accounted for more accurately. Evaluate how a business can achieve a competitive advantage in the marketplace through the use of ABC and how you would convince senior management that a system should be implemented. Activity-based Costing (ABC) is the inventory control method that is used to determine the inventory on the basis of usage, cost or sales criteria. In the competitive world, the firms are well aware that the performance of their supply partners directly effect on their performance and growth. ABC inventory method is very helpful for the companies in controlling the cost of inventory it stores. It works on Pareto law that is known as 80/20 rule. Once the companies decide that which item will fall under the category of ABC, it helps the companies to take initiatives for cost reduction. It helps in determining what derives the cost and performance and translates non-financial performance into activity cost and financial measure. Senior management can be convinced by knowing the advantages of using this method. It increases the customer services, and impact positively on production efficiency process, cost advantage, and product planning efficiency.
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