Suitability Of Time-Driven Activity-Based Costing For Tata Motors Company

Description of Tata Motors Company

Question:

Discuss about  the Analytic Hierarchy Process Method in the Balanced.

The report is being prepared in order to check whether the Time-Driven Activity-Based Costing is suitable for Tata Motors Company or not. In order to proceed, the report will provide a brief description of the Tata Motors Company along with the concept and features of the Time-Driven Activity-Based Costing. The report will also explain the difference between Time-Driven Activity-Based Costing, Traditional Costing system and Activity Based Costing.     

The automobile industry is one of the most revenue earning industry which is growing with time. The automobile industry deals in the trading and manufacturing of vehicles that consists of farm equipment, trucks, commercial vehicles and passenger cars. This industry offers people to reach their destination such as office, shopping, etc. on time (Infoplease. 2017). Tata Motors Company is a well-known and one of the top companies in the automobile industry. The company was founded by Jamsetji in 1868 (Tata Motors, 2017). Tata Motors has the membership of USD 100 billion group. The services of the company are customer-centric this is because of their Moto i.e. of giving back to the community and surviving in the market for longer time duration. Therefore, they maintain good relations with their customers, suppliers, as well as with their competitors.

The efforts of the company are towards changing the background of the automobile industry by offering a variety of choices of the customers. The demand and choice of the customer are respected in the company and therefore they try to bring new technologies with enhanced performance. The passenger cars of Tata Motors are designed for advanced connectivity, luxury, and performance. The focus of the company is on their future objectives and to offer best quality and service to their customers. Further, the research and development department of the company is majorly in Italy, UK, India, and Korea. The company has entered into the various strategic acquisition and joint ventures in order to launch new and different products. The global strategy of Tata Motors is to maintain their operations in three segments which are Passenger cars, Utility vehicles, and Commercial vehicles. Tata Motors main agenda of globalization was to increase the market share, customer base, and revenue.

The vision of Tata Motors is to be admired by their business partners, customers, shareholders, and employees for the value and experience they gain while working with them (Daniels, 2017).

The mission of Tata Motors is to be passionate about expecting and offering the vehicles with best quality, features, and experiences to customers globally that excite them (Tata Motors Annual Report, 2015).

The manufacturing service of Tata Motors does not only involve advanced technology but they have the talented and skilled team of employees and engineers who develop vehicles with best quality (Tata Motors, 2017). Company’s manufacturing plants are certified for delivering vehicles with manufacturing standards and best quality. The reason behind the success of the company in the automobile industry is the focus of their manufacturing department which is on automation of technology. The development cycle is the feature of IT industry which is reducing the involvement of human. Digital Manufacturing is known as the computer based management of manufacturing process. In today’s scenario, all the organizations are taking benefit of Digital Manufacturing. The productivity of Tata Motors Company has improved due to the offering of Digital Manufacturing such as “Design for Manufacturing and “Design for Servicing” and were successfully managing their manufacturing process. This process has reduced the cost and time of manufacturing process.

Concept and features of Time-Driven Activity-Based Costing

The Time-Driven Activity-Based Costing offer companies a sophisticated and applied choice for defining their processes capacity and cost utilization and orders profitability, customers and products. Time-Driven Activity-Based Costing allows companies to recover their systems of cost management , not abandon them (Sethi, Bogataj and McDonnell, 2012). Managers of the companies obtain precise information of profitability and cost to fix main concern for process enhancements, justify their mix and variety of product, the price of the customer orders, and handle the relationships with the customer in such a way that is beneficial for both the parties. Time-driven activity-based costing simplifies the process of costing by excluding the survey and interview needs and assigning the cost of resource for the activities of organization operations before making them down to cost objects (customers, products, and orders, products). Under this method, resource costs are directly assigned to the cost objects by making use of a sophisticated framework demanding only two sets of estimations, which are very easy to acquire. 

First, the calculation has been done for providing the cost resource capacity. For example, think of a process or department for managing the orders of customers (Anderson and Kaplan, 2017). In this step, the model of TDABC computes the resources cost and occupancy, personnel, technology, supervision, and equipment are provided to this process or department. It assists in dividing this entire cost by the capacity of the available time from the employees essentially executing the department’s job to attain the capacity cost rate.

Second, Time-driven activity-based costing makes use of cost rate of the capacity to determine the cost of department resources to cost objects by assessing the resource capacity demand that all cost object needs. For example department of receiving the customer order, the method needs only the estimation of the requirement of time for processing a specific order of the customer. But time-driven activity-based costing does not need that all the order of customer is the same. It permits the estimated time to differ depending upon the precise demand of a specific order, like automated or manual orders, advanced orders, delicate or dangerous goods orders, international order or new customer order lacking a record of current credit. The method of TDABC encourages the actual procedures used to achieve work during the operation of an enterprise. Therefore, it can detect far more difference and difficulty as compared to ABC method, without making an explosion demand for data assessments, packing, or handling abilities. By making use of TDABC, a company can hold difficulty rather than using easy, imprecise ABC models of its multifaceted businesses.

The Time-Driven Activity-Based Costing simply includes deviation in the time demands created by various dealings. It does not need the shortening supposition, made so far, that every transaction or order is same and need same time duration for the processing (Robert, 2007). Time-Driven Activity-Based Costing also offer managers with an ability to reflect the future. The principal factor is captured by the equation that generates the demands for the capacity of the process, along with the variations in the process competences, product mix and volume, channel mix and customer order patterns. Time-Driven Activity-Based Costing model can be used by the managers in order to execute dynamic what-if examination of numerous situations. This model can be simply combined into a new process of making financial arrangements that systematically compute the essential spending and supply on the capacity of resource which is required to supply on future periods’ production and sales strategies.

• It offers various business organizations to improve their cost management systems by describing their capacity of the process and utilization of cost and profitability of the orders, products, and customers.
• The process of costing becomes easier with the help of Time-Driven Activity-Based Costing as it assists the management of the organization in removing activities such as survey and interviews and makes use of relevant and important information.
• This method is very effective due to its feature of allocation of resource cost directly to the cost objects.

Time-Driven Activity-based Costing is suitable for the Tata Motors Company in order to attain the increased productivity at low cost and in less time. Some benefits of the Time driven activity-based costing that Tata Motors Company can gain by implementing this costing in their process are as follows:-

• The Time-Driven Activity-based costing is easy to install in the course, low cost, flexibility, and system simplicity.
• The managers of the company can take correct decisions and can estimate the quality of inactive capacity. Hence, the company’s manager who possesses the information of the person’s productivity and the actions can make the basis planning more properly.
• TDABC method is prepared for those companies which have various process sources and suppliers used in numerous ways, services and products that are created in various classes and customers who need altered facilities. Therefore, the company like Tata Motors incline to act in such procedures for receiving true and real information need to implement Time-Driven Activity-Based Costing.
• TDABC method is considered as the enhanced version of old Activity-based costing which assists the company in estimating the source demand of every procedure, customer, and product with the support of necessary time to achieve the actions and the capacity cost unit time.
• In the old Activity-based costing method first, it is been estimated that how much time is given by which employee and to which activity after the cooperation of the staff’s member who performs various responsibilities in a company. After that, it is defined as the overall cost of all the action and dispersed to the customer, service, and product or depending on the activities (Kaplan and Anderson, 2017). But Time driven activity-based costing is different because it allocates the company’s indirect expenses based on the working time of every activity. Therefore, it is believed that as the products and services work through various procedures take dissimilar time, and the resources are used at various levels. This is the reason; the cost of an employee depends on their schedule of working and is distribute services and products (Ayvaz and Pehlivanli, 2011).

Conclusion

In the conclusion, it has been identified that Time driven Activity-based costing will be suitable for Tata Motors Company because it saves a lot of time, money and effort of the management. Along with this, the method is very effective as it helps in increasing the productivity of the company due to the simplicity of the method and it is also very simple to install. Time-driven activity-based costing is designed for those companies who have various departments and with various process or activities. This method will make all the process smooth and effective which will bring best results for Tata Motors Company. The above report has provided the detail description of the Tata Motors Company and about the Time driven activity-based costing. It has also explained the difference between the TDABC method, ABC method, and traditional costing method.

References

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