The Implementation of ABC and TDABC at Leman LLC: A Quantitative Case for Managerial Accounting Course

Abstract

The Leman LLC case was designed to be used in a managerial accounting class with limited exposure to ABC and TDABC systems. It introduces students to ABC and TDABC through a numerical exercise and provides the opportunity to study and analyze the details of the implementation of these cost accounting systems in a paint-producing company – Leman LLC with business processes performed by employees from different departments. The case contains enough variety and complexity in order to provide a clear picture on how the production of two similar products (regular paint and special paint) can make very different demands on the resources of a company. It illustrates the mechanics of ABC and TDABC together with respective product profitability analysis. The Leman LLC case permits a rich discussion of the rationale for introducing ABC and TDABC, the advantages and disadvantages of these management accounting instruments relative to traditional costing and to each other, important technical issues in the implementation of these instruments (e.g., resource allocation among cross-functional activities, the construction of time equations, estimates of unit times, treatment of capacity, etc.), as well as the role of a cost management accounting system for generating relevant information for decision making. The case provides one set of data for both ABC and TDABC models, facilitating the comparison of the mechanics of these methods. Overall, the Leman LLC case is designed to help students develop the required skills in the application of ABC and TDABC within a limited period. It is suitable for both graduate (MBA) and undergraduate students.