Time-driven Activity-based Costing System Research Articles

Increasing the efficiency of delivery operations and customer profitability analysis with a time-driven activity-based costing model

Learning outcomes Upon completion of the case study discussion, successful students will be able to define and list the steps of time-driven activity-based costing system (TDABC); understand and explain the ideas behind the TDABC; implement the TDABC in customer profitability analysis; draw connections among the cost and profitability analysis; evaluate the importance of better costing techniques in profitability analysis; and make managerial decisions based on TDABC analysis. Case overview/synopsis Gluten Limited’s financial affairs and operations manager, Fatih, was aware that the company was making very little profit from its operations with its biggest customer. The main reason appeared to be that it delivered its products in bulk to the main warehouses of the customer, which then distributed them to the stores. Fatih believed that products were being sent to stores late, so that their expiration dates passed quickly and they ended up being returned. The case study documents the past year of Gluten Limited’s delivery operations with one of its biggest customers. It focuses on the effectiveness of its delivery operations and ways to increase profitability by reducing sales returns. The case dilemma involves the choices that Fatih faced following a six-month trial period: either delivering products in bulk to the customer’s main warehouses at lower cost but higher return rates or delivering small amounts directly to stores at higher cost but lower return rates. Fatih needed to decide which mode of customer operations was more profitable and continue that way. Knowing the importance of determining costs properly in profitability analysis, Fatih made the cost calculations using the TDABC system. Complexity academic level This case was written for use in Cost Accounting and Managerial Accounting classes at the undergraduate level. The focus of the case aligns well with discussions of customer profitability analysis, cost reductions, eliminating non-value-added activities, and profitability of operations. Instructors seeking to emphasize the most suitable costing methods for customer profitability analysis could assign this case. Supplementary material Teaching notes are available for educators only. Subject code CSS 7: Management Science

The Integration of the Theory of Constraints and the Time-Driven Activity-Based Costing System for the Improvement of Production Processes in an SME

In this study, the Time-Driven Activity-Based Costing System (TDABC) is discussed with the Theory of Constraints (TOC). The integration of TDABC and TOC has enabled the determination of the bottleneck activities by the examination of the entire production capacity. For this purpose, a case study was carried out in a manufacturing company. In line with the aim of the case study, the capacity usage based on the TDABC system and capacity constraints were determined within the framework of the TOC. As a result of this study, the following findings were obtained: The activities in the production process of the company were divided into 10 resource centers. Capacity constraints were determined in two of them and it was determined that the order received in the period subject to the study could not meet the production. It was also understood that the degree of products' utilization of operating activities changed due to the differences in the production processes and that the product with a more complex production process required more capacity utilization. This creates a resource constraint for some activities. Then the solutions based on the five-stage improvement of the theory of constraints were proposed to reduce the identified capacity constraints. The solutions were proposed considering the short and long term. The decision of the product mix that would provide the highest profitability in the short term was made by linear programming and products to be discontinued were decided. Overwork or recruitment of additional staff was proposed to increase the capacity in the long run. The results of the study support the managerial decisions in terms of capacity management, product mix decisions, and improvement of production processes by using the time equations of TDABC. Based on the results of this study, businesses that manufacture products that go through different production processes can benefit from the determination of the utilization degree of the products, the idle and bottleneck capacity, and solutions for their improvement. En este estudio se analiza el sistema de cálculo de costes por actividades en función del tiempo (TDABC) con la teoría de las restricciones (TOC). La integración de TDABC y TOC ha permitido determinar las actividades de cuello de botella mediante el examen de toda la capacidad de producción. Para ello, se llevó a cabo un estudio de caso en una empresa manufacturera. De acuerdo con el objetivo del estudio de caso, se determinó la utilización de la capacidad basada en el sistema TDABC y las limitaciones de capacidad en el marco de la COT. Como resultado de este estudio, se obtuvieron las siguientes conclusiones: Las actividades del proceso de producción de la empresa se dividieron en 10 centros de recursos. Se determinaron las limitaciones de capacidad en dos de ellos y se designó que el pedido recibido en el periodo objeto del estudio no podía satisfacer la producción. También se entendió que el grado de utilización de los productos de las actividades operativas cambiaba debido a las diferencias en los procesos de producción y que el producto con un proceso de producción más complejo requería una mayor utilización de la capacidad. Esto crea una limitación de recursos para algunas actividades. A continuación, se propusieron las soluciones basadas en la mejora de cinco etapas de la teoría de las restricciones para reducir las limitaciones de capacidad identificadas. Las soluciones se propusieron considerando el corto y el largo plazo. La decisión de la combinación de productos que proporcionara la mayor rentabilidad a corto plazo se determinó mediante programación lineal y se decidieron los productos que debían dejarse de fabricar. Se propuso el exceso de trabajo o la contratación de personal adicional para aumentar la capacidad a largo plazo. Los resultados del estudio apoyan las decisiones de la dirección en cuanto a la gestión de la capacidad, la combinación de productos y la mejora de los procesos de producción mediante el uso de las ecuaciones temporales de TDABC. A partir de los resultados de este estudio, las empresas que fabrican productos que pasan por diferentes procesos de producción pueden beneficiarse de la determinación del grado de utilización de los productos, la capacidad ociosa y el cuello de botella, y las soluciones para su mejora.

Time-Driven, Activity-Based Costing to Reduce Interventional Radiology Suite Idle Time.

Background With the ever-increasing complexity of today's healthcare environment, it is evident that there is a higher demand to deliver high-quality, accessible, efficient, and affordable healthcare. At the same time,these changes are accompanied by decreasing rates of reimbursement. This can be attributed to the shift from fee-for-service to value-based payment methods in the industry. The reception of such changes in the appropriate manner is crucial to improvement and the much-demanded reform in our healthcare system. To adapt to this changing landscape, hospitals and healthcare systems must incorporate proper measures to identify extraneous spending, control costs, and streamline patient care. Our goal in this study was to use the time-driven, activity-based costing (TDABC) model to quantify the costs at every step as an inpatient goes through the care process in an interventional radiology department. Methodology After identification and mapping of all the steps involved from interventional radiology (IR) consult placement to patient transport to the postoperative recovery area, time data were collected for each step of the process. One of the steps was then selected for intervention.Our focus was on the time interval between one patient leaving after a completed procedure and the next scheduled patient entering the IR suite (heretofore referred to as idle time). To decrease the idle room time between patients, the interventional radiologists, IR administrations, nurse manager, transportation manager, and charge nurse first met as a group to set a realistic initial goal. Pre-intervention data were collected. Results After the collection of pre-intervention data, the average idle time of the IR suite was found to be 40 minutes. After a multidisciplinary discussion, our goal was to reduce this time to 25 minutes. Post-intervention data found the average time decreased to 24 minutes. Calculation of average costs per unit time for staff, IR room, and equipment yielded an approximate cost of $57 per minute of time in the IR suite. Conclusions Considering the near 40% decrease in suite idle time as well as the cost per minute of material, equipment, and staff (at ~80% capacity), this study proves that the TDABC system is a viable method of targeting bottlenecks in operations and streamlining patient care by reducing costs while optimizing the process patients go through during care continuum.

TIME DRIVEN ACTIVITY BASED COSTING SYSTEM IMPLEMENTATION IN THE INTERNAL AUDIT DEPARTMENT OF A BANK

Organizations using traditional cost systems are having difficulties in fulfilling today’s business requirements in competitive markets. An efficient and effective cost system should be in place for the satisfaction of needs of competitive environment in which technology, digitalization and efficiency are the key drivers. In the literature, allocation of indirect costs and also calculation of unused capacity of the resources are the hot topics of the cost and performance evaluation research. An effective costing system known as Time-Driven Activity Based Costing system (TDABC) can be used for the measurement of product or service costs with accurate and reliable data considering unit costs of resources allocated to activities and the time length required for execution of these activities and the determination of unused capacity. This system properly elaborates the cause and effect relations between resources and their costs identifying the activities/ sub-activities.This article presents a case study which shows all the stages of TDABC in the internal audit department of a bank by analyzing the operations of the department and defining all the activities that consume the resources. The goal of this paper is to design a cost accumulation system to calculate the cost of audits of the internal audit department of a bank by implementing TDABC system.

A Review on Time-Driven Activity-Based Costing System in Various Sectors

Time-Driven Activity-Based Costing is a type of method which can describe as a costing model that consider a time which known as inducer time. This method is providing the cost of activities with base that consume of time per activities. In this study, published works was based on literature studies from 56 journals from period 2011-2018 which including in area of healthcare, industrial and library. The study reported only 10 papers out of previous 56 papers that focus for more efficient as their main advantage from using Time-Driven Activity-Based Costing’s four methods which are process map, capacity cost rate (CCR), time equation and forecasting. However, there is no paper show the methodology uses of Time-Driven Activity-Based Costing in palm oil plantation. The aim of this study is to explore the research gap of Time-Driven Activity-Based Costing in the journals that can be as guideline in applying Time-Driven Activity-Based Costing system in palm oil plantation. In this study, Time-Driven Activity-Based Costing is a new system able to apply in various environments in order to get better process in each workstation and also the time will be more accurate in each activity or sub-activities of a product. This costing method can also increase organizations' profits because the unused product capacity is counted in this method. The advantage of TDABC is that it provides an accurate cost accounting starting point for providers. As resources become more limited in the future, providers will need to understand their real costs in the provision of specific services.

A combined modelling of fuzzy logic and Time-Driven Activity-based Costing (TDABC) for hospital services costing under uncertainty.

Hospital traditional cost accounting systems have inherent limitations that restrict their usefulness for measuring the exact cost of healthcare services. In this regard, new approaches such as Time Driven-Activity based Costing (TDABC) provide appropriate information on the activities needed to provide a quality service. However, TDABC is not flawless. This system is designed for conditions of relatively accurate information that can accurately estimate the cost of services provided to patients. In this study, the fuzzy logic in the TDABC model is used to resolve the inherent ambiguity and uncertainty and determine the best possible values for cost, capacity, and time parameters to provide accurate information on the costs of the healthcare services. This approach has not yet been tested and used in determining the costs of services of a healthcare setting. Therefore, the aim of this study is to present a new Fuzzy Logic-TDABC (FL-TDABC) model for estimating healthcare service costs based on uncertainty conditions in hospitals. The proposed model is implemented in a sample of the hospital laboratory section and the results are compared with the TDABC system. The TDABC model, by allocating the activity costs including fixed costs and not considering the uncertainty regarding the cost, capacity, and time required for each patient, often estimates the unused capacity and costs with a higher margin of error. The results show that the maximum difference in the prescribed costs was 4.75%, 3.72%, and 2.85% in blood bank, microbiology, and hematology tests, respectively, mostly due to uncertainty in the costs of consumables, equipment and manpower (on average 4.54%, 3.8%, and 3.59%, respectively). Also, The TDABC system, in comparison with the proposed system, estimates the unused capacity of the resource with more error. Cost of unused capacity derived using FL-TDABC were 80% of costs derived using TDABC. In conditions where the information is ambiguous, using the new system in hospitals can lead to a more accurate estimate of the cost compared to the TDABC system. Moreover, it helps hospital managers to make appropriate decisions about the use of capacity, capital budgeting, cost control, and etc.

A Comparison of Activity-Based Costing and Time-Driven Activity-Based Costing

ABSTRACT The relationship between activity-based costing (ABC) and time-driven activity-based costing (TDABC) has not been systematically investigated. We compare the two systems analytically and via a numerical experiment. Our analytical comparison generates formulas that describe how each system maps resources to activities and finally to products. We demonstrate that ABC aggregates resource-to-activity information by resources (columns), while TDABC selects partitions of activity-by-resource information. Our numerical experiment shows that TDABC is more accurate than ABC when traceability of resources to activities is high and activity traceability to products is low, while ABC is more accurate when activities are more traceable to products, irrespective of the level of resource traceability to activities. Finally, we examine the impact of hybridizing an ABC (TDABC) system with TDABC (ABC). We find that adding one ABC element into a TDABC system usually improves accuracy. However, adding one TDABC element into an ABC system usually substantially degrades accuracy. Data Availability: The simulated datasets are available from the first author on request.

A New Costing Model in Hospital Management

Traditional cost systems cause cost distortions because they cannot meet the requirements of today's businesses. Therefore, a new and more effective cost system is needed. Consequently, time-driven activity-based costing system has emerged. The unit cost of supplying capacity and the time needed to perform an activity are the only 2 factors considered by the system. Furthermore, this system determines unused capacity by considering practical capacity. The purpose of this article is to emphasize the efficiency of the time-driven activity-based costing system and to display how it can be applied in a health care institution. A case study was conducted in a private hospital in Cyprus. Interviews and direct observations were used to collect the data. The case study revealed that the cost of unused capacity is allocated to both open and laparoscopic (closed) surgeries. Thus, by using the time-driven activity-based costing system, managers should eliminate the cost of unused capacity so as to obtain better results. Based on the results of the study, hospital management is better able to understand the costs of different surgeries. In addition, managers can easily notice the cost of unused capacity and decide how many employees to be dismissed or directed to other productive areas.

Cost modelling in maintenance using time-driven activity-based costing

The purpose of this paper is to demonstrate the possibility to use time-driven activity-based costing (TDABC) in maintenance cost modelling. It deals with three questions: how maintenance activities could be described? How could TDABC system model the complex maintenance processes? How could TDABC improve maintenance decision-making? This contribution is illustrated using the experience of a materials production company. The model is proposed using the process approach to describe maintenance process. The research illustrates that maintenance process cannot be modelled as a function but as a set of sub-processes. This document is one from the few papers that experiment TDABC in industrial sector. The proposed model can be used to support managers initially to identify maintenance activities and organise maintenance department. The model provides the possibility to predict the benefit costs for improvement actions before their establishment. This paper complements current discussion on the use of TDABC in the industrial costing especially maintenance costing.

Activity-Based Costing (ABC) and Time-Driven Activity-Based Costing (TDABC): Applicable Methods for University Libraries?

Objective – This article provides an overview of how university libraries research and adapt new cost accounting models, such as “activity-based costing” (ABC) and “time-driven activity-based costing” (TDABC), focusing on the strengths and weaknesses of both methods to determine which of these two is suitable for application in university libraries.
 
 Methods – This paper reviews and summarizes the literature on cost accounting and costing practices of university libraries. A brief overview of the history of cost accounting, costing, and time and motion studies in libraries is also provided. The ABC and the TDABC method, designed as a revised and easier version of the ABC by Kaplan and Anderson (Kaplan & Anderson 2004) at the beginning of the 21st century, as well as the adoption and adaptation of these methods by university libraries are described, and their strengths and weaknesses, as well as their suitability for university libraries, are analyzed.
 
 Results – Cost accounting and costing studies in libraries have a long history, the first of these dating back to 1877. The development of cost accounting and time and motion studies can be seen as a natural evolution of techniques which were created to solve management problems. The ABC method is the best-known management accounting innovation of the last 20 years, and is already widely used in university libraries around the world. However, setting up an ABC system can be very costly, and the system needs to be regularly updated, which further increases its costs. The TDABC system can not only be implemented more quickly (and thus more cheaply), but also can be updated more easily than the traditional ABC, which makes the TDABC the more suitable method for university libraries.
 
 Conclusion – Both methods are suitable for university libraries. However, the ABC method can only be implemented in collaboration with an accounting department. The TDABC method can be tested and implemented by separate departments, and thus can contribute to the provision of better and more effective library services at lower costs. However, the involvement of experts in costing and accounting is recommended.