Implementation of Time-Driven Activity-Based Costing System in the Manufacturing Industry: Evidence From Turkey

Implementation of Time-Driven Activity-Based Costing System in the Manufacturing Industry: Evidence From Turkey

Ahmet Özcan (Adana Alparslan Türkeş Science and Technology University, Turkey)
Copyright: © 2020 |Pages: 12
DOI: 10.4018/978-1-7998-0178-8.ch015

Abstract

In the current business environment, the costing system used within the firms has prominent impact on strategic decisions. High-quality cost data significantly increases the quality of firms' strategic decisions. The activity-based costing system has failed to satisfy the needs of firms operating in the competitive economic environment. The time-driven activity-based costing system is the developed version of activity-based costing system. Time-driven activity-based costing system is one of the most sophisticated costing systems that enable firms to accurately calculate the cost of goods and services. Time-equations are used in time-driven activity-based costing system to estimate the time consumed by each activity. This chapter aims to discuss main dynamics of time-driven activity-based costing system and provides an illustration of this costing system in the manufacturing industry. The case study demonstrates that time-driven activity-based costing system is useful in calculating idle capacity cost.
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Features Of Time-Driven Activity Based Costing System

In this section, the main features of time-driven activity based costing System are discussed. Along with the development of technology, the nature and dynamics of costing systems have changed. In today’s business environment, the cost structure is highly complex. Traditional costing systems are ineffective in dealing with complex cost structure. This can lead to ineffective decision making process.

Previous studies demonstrated that time-driven activity based costing system is fit for ever-changing market conditions. In today’s business climate, firms’ management wants to employ a costing system that can produce accurate results for complex operations. An advanced software can make it possible.

Kaplan and Anderson (2007) state that time-driven activity based costing system is simple and one of the effective ways to get detailed information about costs incurred in production process. In the firms using time-driven activity based costing system, the consumption time of activity plays a vital role in the costing of goods and services. Inaccurate estimation of activity time could cause misleading results. Time-driven activity based costing system employs time equations for assigning the resource costs (Kaplan & Anderson, 2007).

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