Kaplan thinks that traditional ABC systems has some drawbacks. First of all, it costs much money to use activity based costing systems. It is also rather difficult to understand these systems and this fact makes the process of their usage very complicated as well. Even if it were possible to apply ABC, in this case thorough organization and much time for working out the program for usage the systems would be needed. It is known that in traditional management accounting there is a single-centre approach. As for ABC, here it is necessary to subdivide the costs into numerous tools to apply for any type of activity. This fact means that it is not easy to work with activity based costing. Therefore, ABC is a good system for small enterprises, but it is very difficult and expensive to use it in, for example, large banks. Moreover, all profit improvements after the use of the system will not appear at once. This will happen only in six or more months.
Can't complete your paper?
Need a quick, creative solution?
Never too late to get it done by our prosWrite My Paper
The drawbacks of the activity based costing do not mean that there are no benefits. The systems perfectly address the challnges of the traditional system. For example, it is rather difficult to understand the company’s economics accurately, but ABC makes this possible. With the help of this system the administration of the company gets an opportunity to identify and see the factors that make the enterprise lose money. Everything that usually takes much time if the company is based on a traditional system is done much faster and better with the help of ABC. This system gives an opportunity to improve internal processes, to establish better partnership with both the suppliers and customers, redefine the relations with the customers. All these improvements will bring much financial benefit to any company or enterprise that will use the activity based costing system.
TDABC is easier to use than ABC. It is necessary to stress that TDABC gives the companies a very accurate model of their profitability and cost. That is why it becomes more convenient to control delivering and producing the goods or services. Moreover, TDABC is a good system to use when the company’s goal is to connect operational budgeting and strategic planning. The main advantage of TDABC is that it is more accurate than other systems. This feature is the consequence of the system’s ability to percept all resource demands from numerous functions and operations. It is done by means of creating several additional terms for the departmental equation of time. Another important feature of TDABC is that it connects all the processes done by ABC and other systems and they compose one process. Moreover, it may be used by managers to do a special what/if analysis and to perform business-planning.
Unfortunately, TDABC does not resolve all ABC issues. There are still some gaps to fill. It will take much time to plan how to apply a new system. It is necessary to stress that all the calculations in TDABC system are expected to be performed by the managers. This may become the cause for numerous errors. That is why the information can be inaccurate and there is no way to change this fact. A new formula created for TDABC is not recognised as a good and profitable one by all scholars. There are also numerous unsolved problems concerning time measuring. For example, service activities time is practically always different and it seems impossible to measure it. All this information means that still ABC and TDABC need improvement in numerous issues.