Time-Driven ABC and Enterprise Resource Planning (ERP) articles Essay

Time-Driven ABC and Enterprise Resource Planning (ERP) articles analysis - Essay Example After realizing that this technique consumes a lot of time, Kaplan and Anderson improved on it and developed a new method known as Time-driven Activity Based Costing (TDABC). This technique uses information from Enterprise Resource Planning System (ERP) to assign costs to products and services directly and in a less costly manner (Kaplan, & Anderson, 2005). This paper will analyze the drawbacks of ABC that made Kaplan to develop TDABC and the relationship between TDABC and ERP. The drawbacks of ABC that led to the development of TDABC include overlooking capacity, expensive, and time consuming (Gilbert, 2007). The technique consumes time because organizations have to conduct interviews to ask workers the amount of time that they take to complete each activity. Companies take time to develop questions to ask workers about all the activities that they carry out in the firm and it consumes even more time to conduct the interview sessions (Kaplan, & Anderson, 2005). This process is also expensive because companies have to acquire resources to conduct the interviews; for example, organizations spend money on developing questionnaires, paying interviewers, and analyzing the data from the interviews. This increases the expenses of a firm leading to low profits. Kaplan also argues that the traditional ABC technique ignored the role of capacity in organizations. The traditional ABC method allocated costs to products by first determining the cost of all activities in a company. This means that this technique ignored the ability of workers and machines to produce goods in a company (Kaplan, & Anderson, 2005). The other limitation of ABC is that it is inaccurate because of errors that employees make when estimating the time that they use to complete activities in an organization (Gilbert, 2007). Time-driven Activity Based Costing solves the problems of traditional ABC by using accurate data from ERP that consumes less time and takes into account the capacity of