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Related Experiment Videos

Time-driven activity-based costing.

Robert S Kaplan1, Steven R Anderson

  • 1Harvard Business School, Boston, USA. rkaplan@hbs.edu

Harvard Business Review
|November 24, 2004
PubMed
Summary
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A new approach to activity-based costing (ABC) simplifies resource management by having managers estimate transaction demands, overcoming the challenges of traditional large-scale ABC implementation and employee surveys.

Area of Science:

  • Business Administration
  • Management Accounting

Background:

  • Activity-based costing (ABC) is a valuable classroom concept for resource management.
  • Large-scale ABC implementation often fails due to high costs and employee dissatisfaction.

Purpose of the Study:

  • To present a revised ABC model that addresses implementation challenges.
  • To offer a simpler, more cost-effective method for obtaining accurate costing data.

Main Methods:

  • Managers estimate resource demands per transaction, product, or customer.
  • Utilizes two key parameters: resource supply cost per time unit and activity time per unit.
  • Incorporates idle time and develops "time equations" to reflect operational complexity.

Main Results:

Related Experiment Videos

  • The revised model bypasses costly and problematic employee surveys.
  • Managers can obtain meaningful cost and profitability insights quickly and affordably.
  • Identifies inefficiencies, unprofitable products/customers, and excess capacity.

Conclusions:

  • The new ABC approach offers a practical solution for effective resource management.
  • Enables managers to focus on operational improvements rather than data maintenance.
  • Facilitates better decision-making regarding product, customer, and process profitability.