This management accounting course case study about Activity Based Costing

Concepts in Action Time-Driven Activity-Based Costing at Charles Schwab Time-driven activity-based costing ("TDABC") helps Charles Schwab, the leading stock brokerage, with strategic-analysis, measurement, and manage- ment of its stock trading activity across multiple channels such as branches, call centers, and the Internet. Because the costs for each channel are differ- ent, TDABC helps answer questions such as the following: What are the total costs of branch transactions versus online transactions? Which chan- Charles Schwab nels help reduce overall costs? How can Charles Schwab price its services to drive changes in customer behavior? TDABC assigns all of the company's resource costs to cost objects using a framework that requires two sets of estimates. TDABC first cal- culates the cost of supplying resource capacity, such as broker time. The total cost of resources including personnel, management, occupancy, technology, and supplies is divided by the available capacity-the time available for brokers to do the work-to obtain the capacity cost rate. Next, TDABC uses the capacity cost rate to drive resource costs to cost objects, such as stock trades executed through brokers at a branch, by estimating the demand for resource capacity (time) that the cost object requires. Realizing that trades executed online cost much less than trades com- pleted through brokers, Charles Schwab developed a fee structure for trading of mutual funds to stimulate the use of cheaper channels. Charles Schwab also used TDABC information to lower process costs by several hundred million dollars annually and to better align product pricing and account management to the company's diverse client segments. The company is working on other opportunities, including priority-call routing and email marketing, to further reduce costs while maintaining or enhancing Charles Schwab's already top-rated customer service. Sources: Kaplan, R. 5. and S. R., Anderson. 2007. The innovation of time-driven activity-based costing. Cost Management, March-April: 3-13; Kaplan R. S. and 3. R. Anderson. 2007. Tone-drives activity-based costing. Boston, MA: Harvard Business School Press; Martinez-Jever, F. Asis. 2007. Understanding customer profiability as Charles Schwab, Harvard Dusincea Schaal Cas Study No. 9-106-102, January