Teaching Plan This is an introductory case, and yet it introduces a powerful new approach for building an ABC model. Considerable theory is illustrated in how we build the Sippican time-driven ABC (TDABC) model. Also, the (B) case introduces an important link, previously recognized but not exploited, in how to embed an ABC model into the budgeting process, replacing line-item budgeting with an integrated, analytic approach. The case discussion provides insight and confidence about the feasibility
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shifts in product costs were highly visible since the company had eliminated entirely its direct-labor based standard cost system. Thus, the simple ABC system was being used not only for internal product costing but also for inventory valuation for external reporting. AT&T PARADYNE, Harvard Business School, April 21, 1998. The company developed a different ABC model structure where the factory expenses were split into three categories
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There are so many different ways to approach this, it almost becomes an art. If there was a button that could easily and accurately give us the portion of overhead to associate to each cost pool this process would be much easier. The nature of ABC model is to allow different approaches; time model equations are always different. There are different ways to solve for the same cost driver. The best way to be accurate is to try and isolate activities down to the component drivers. For instance, with
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