Improving customer profitability calculations utilizing TDABC in a rental business setting

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Volume Title

School of Business | Master's thesis

Date

2018

Major/Subject

Mcode

Degree programme

Accounting

Language

en

Pages

99

Series

Abstract

RentCorp has recognized the need for customer profitability (CP) calculations for years. Although technical limitations and calculation complexities have pushed the development back, RentCorp has now begun to develop a CP model on their own. However, the model has received criticism within the company even before its utilization on a large scale. In this paper, new customer profitability model will be constructed for RentCorp. The new model is selected and constructed utilizing recommendations from existing literature, considering RentCorp’s industry and needs. The current model is a mix of traditional costing and coefficient costing. The newly developed model is based on a time-driven activity-based costing system (TDABC). The newly developed model will be compared to RentCorp’s current model, and the comparison is made from a managerial decision-making perspective, utilizing an information quality framework. TDABC was found to improve information quality in all discussed aspects compared to the current model. The current model was found to have sufficient information accuracy upon a higher level of analysis. However, other information quality aspects such as information believability and understandability were determined to be the main barrier for a wider adoption of the current model. Finally, it was determined to be reasonable for RentCorp to invest in the TDABC model due it’s to low cost and relatively high benefits.

Description

Thesis advisor

Malmi, Teemu

Keywords

time-driven activity-based costing, TDABC, renting, traditional costing, coefficient costing, customer profitability, CP, information quality

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