Implementing Tdabc in Hotel Industry

1 January 2017

TDABC requires two steps of calculation: first, the capacity cost rate is calculated (this is equal to the cost of capacity supplied divided by the practical capacity of resources supplied); second, demand for resource capacity is estimated in minutes (Stout & Propri, 2011). The article illustrates that there was a profound discrepancy in the costing and profitability data between the TDABC and ABC models by comparing these two models in two activities of XYZ Company. The TDABC system can obtain the processing times under direct observation in less time than ABC.

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The TDABC system also provides more accurate information than ABC because it measures capacity of resources, like personnel and facilities, using time as the cost-driver. In contrast, ABC assigns costs to products regardless of variations in consumer requirements (e. g. a special service may require more staff time to carry out). Finally, TDABC can be integrated with a company’s Enterprise Resource Planning (“ERP”) system and easily updated and maintained through the ERP system. Implications TDABC is strongly recommended for hospitality industries, like hotels.

We believe that the implementation of TDABC by Hotel Babylon will result in significant improvements in the management team’s decision-making information and, ultimately the decisions it makes. Under TDABC, Hotel Babylon’s management will be able to fully understand its consumers’ behaviours, enabling it to manage the capacity of resources more efficiently because TDABC allows the service time of complex transactions to be estimated. At Hotel Babylon, we found that a guest (“Guest A”) who used the online reservation system took less time on check in than another guest (“Guest B”) who had not booked online.

In other words, Guest A had a lower cost of service than Guest B because they consumed less staff time. Therefore, the hotel could promote a discount scheme which encourages guests to use online booking systems in order to reduce staff costs. In addition, TDABC would enable the hotel to identify the profitability of different consumer segments. For example, a housekeeper may devote more time to cleaning a room used by soccer fans than one used by business men. Based on TDABC, the profit and loss (“P&L”) would show that business men generate more profit than soccer fans in terms of housekeeping.

The hotel could then implement strategies to attract more business guests and encourage sports fans to spend money on non accommodation services (e. g. food and beverage) to maximise the profitability of the hotel. TDABC also provides an overview of hotel operations to management, especially if management changes (e. g. a new housekeeping manager could quickly obtain the standard housekeeping time for different guest groups based on the information generated by TDABC). Recommendations

We recommend Hotel Babylon implement TDABC and integrate it with its ERP system to assist in maintaining and updating the TDABC. Management should also compare the TDABC data with similar hotels to benchmark time spent on granular activities. TDABC is a practical system that provides transparent and meaningful costing information for hotels. Under this system, Hotel Babylon’s management team will be able to make sensible decisions and substantially improve profitability. References Stout, D. , & Propri, J. ‘Implementing Time-driven Activity-based Costing at a Medium-sized Electronics Company’, Management Accounting Quarterly (Spring 2011), Volume 12, No. 3. [pic] Company Information The 228-room Hotel Babylon is an opulent modern 5-star hotel situated in the heart of London city, and currently implements ABC to allocate the costs of resources. The hotel’s management realised that ABC is a time-consuming system to allocate costs, and it fails to reflect the cost and profitability of the hotel operation. Therefore, the management is seeking an alternative costing method to replace ABC.

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