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(More customer reviews)Activity-based costing was introduced in the 1980s to correct the inaccurate allocation of overhead from standard cost systems, but activity-based costing systems were expensive to build, complex to sustain, and difficult to modify, according to Robert Kaplan and Steven Anderson in this book. According to the authors, Time-Driven Activity-Based Costing is simpler, cheaper and more powerful.
The authors' costing model assigns resource costs directly to resource objects. Firstly, a capacity cost rate is calculated for each department or process, being the total cost of the resources used by the department or process divided by the time available from the employees conducting the work. Secondly, an estimate is made of the demand for resource capacity that each cost object requires. This makes it very easy to see how much it costs to serve a particular customer, or how much excess capacity there is in a department.
The value to a business in implementing a system of the type advocated by the authors will depend on the extent to which the activities of the business consist of standard processes and the extent of benefits gained from knowing the cost of serving individual customers. The system might be better suited to a manufacturing firm, in which the time taken for each process can be estimated accurately, than to a law firm, where the mysterious activities engaged in by attorneys might defy rational measurement.
In my opinion the main value of the book is in the first few chapters where the principles of the system are explained. The last half of the book contains a number of case studies which are likely to be of interest only to those who have businesses similar to one or more of those described in the case studies.
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