Installing time-driven ABC in a printing press : a case study

Abstract

Competitive pressures in the printing industry are always increasing following the advent of new technologies and shifting customer demands to lower volume, more specialised work. To thrive in this scenario, a printing press must maximise its efficiency while still providing a quality service. A costing model which can provide accurate costs is thus required to make optimal decisions. Time-Driven Activity Based Costing can provide this information inexpensively along with additional insight into the organisation's operations. Purpose- This case study aims to install TDABC in a printing press and apply the model onto jobs in order to assess its ability to provide relevant costing information in comparison to the current costing system. Design - The research questions were approached through the qualitative paradigm. The case study form was utilized and data was gathered through qualitative methods (by means of semi-structured interviews). Findings- The results show that using time equations provided information on time expenditure which was consistently closer to actual figures than those determined by the quoting process. The setting up of capacity cost rates incorporating the division's full costs illustrated that the current costing system is substantially underestimating its costs by using only direct labour and material costs as a basis for decision making and attempting to cover indirect costs through a mark-up. Conclusion- The considerable differences between TDABC and actual costs have serious implications on the company's ability to make informed decisions using the current costing system. Having more accurate costing estimates would provide the basis for better decision making. Implications - Applying TDABC would aid management to identify which jobs are profitable and which are loss-making, and help the company re-evaluate the worth of its clients.