Time-driven activity-based costing
Time-driven activity-based costing assigns overhead using two estimates per activity: the cost per minute of capacity supplied and the minutes each transaction consumes, avoiding classic ABC's costly interviews.
See it move
A customer-service department supplies 480,000 minutes of practical capacity a month at €96,000, a capacity cost rate of €0.20 per minute. Of those, 464,000 minutes are actually used serving customers, leaving 16,000 minutes unused. That idle capacity still costs 16,000 times €0.20, or €3,200 — a gap the €0.20-per-minute rate makes visible, unlike classic activity-based costing.
The formula
Variables
- Capacity cost rate (€ per minute)
- Cost of resources supplied (€)
- Practical capacity (minutes)
Gives the cost of one minute of the department's supplied capacity, the first of TDABC's two estimates.
Variables
- Cost assigned to the activity (€)
- Capacity cost rate (€ per minute)
- Time required for the transaction (minutes)
Assigns cost to a specific transaction or activity using its capacity cost rate and the minutes it actually takes.
Check yourself
A billing department's time-driven ABC study finds: total cost of resources supplied is €150,000 per month, and practical capacity is 25,000 hours (1,500,000 minutes). A disputed invoice takes 25 minutes to process, while a standard invoice takes 8 minutes. What is the TDABC cost assigned to processing one disputed invoice?