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

Posted: 30 Aug 2014 Last revised: 20 Aug 2018

See all articles by Sophie Hoozée

Sophie Hoozée

Ghent University - Department of Accountancy and Corporate Finance

Stephen C. Hansen

University of Southern Maine - School of Business

Date Written: July 31, 2018

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.

Keywords: costing system design; costing accuracy; costing error; analytical modeling; numerical experiment

JEL Classification: M40

Suggested Citation

Hoozée, Sophie and Hansen, Stephen C., A Comparison of Activity-Based Costing and Time-Driven Activity-Based Costing (July 31, 2018). Journal of Management Accounting Research, Vol. 30, Issue 1, pp. 143-167, 2018 , Available at SSRN: https://ssrn.com/abstract=2489118 or http://dx.doi.org/10.2139/ssrn.2489118

Sophie Hoozée (Contact Author)

Ghent University - Department of Accountancy and Corporate Finance ( email )

Sint-Pietersplein 7
Ghent, 9000
Belgium

Stephen C. Hansen

University of Southern Maine - School of Business ( email )

P.O. Box 9300
Portland, ME 04104
United States

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