The comparison of resource consumption accounting with activity based costing and time driven activity based costing: An application in an industrial institution

The variety in the products and services produced, and the structural change in the production costs resulting from the speed expansion of automation in the production systems and rapid improvements in the information technologies have caused the traditional volume based costing systems to produce misleading results in calculation of the product or service costs. Therefore, the enterprises that cannot reach the correct cost information by loading the production overheads to the products via volume-based measurements have turned towards the efforts of the Activity Based Costing method. Activity Based Costing was brought forward in 1980s in order to make more accurate costing by allowing the products and services to get a share to the extent that they utilize the production overheads through different cost allocation keys for various cost pools. However; difficulties in creation, maintenance, and updating of Activity Based Costing, and ignorance of the unused capacity has prevented this method from being a productive, current, and contemporary management tool. As a result, Time Driven Activity Based Costing and Resource Consumption Accounting have emerged as a next-generation costing model to provide a solution for the problems occurring in the application phase of Activity Based Costing. Time Driven Activity Based Costing is a method that both focuses on the activities and takes into consideration the time factor; whereas Resource Consumption Accounting is a system consisting of a combination of the Activity Based Costing and the German Cost-Accounting system, focus of which is resource. Time Driven Activity Based Costing and Resource Consumption Accounting method allow for calculation of the idle-capacity costs, and produce amore realistic cost information by preventing the over-costing without distributing the calculated idle capacity cost to the products or services. Unlike the Activity Based Costing and Time Driven Activity Based Costing methods, RCA is a more detailed and comprehensive costing system as it classifies the resource costs as fixed and proportional costs, grounds on the depreciation over a substitution cost reflecting the economic reality better, and assists the executives in making both short-term and long-term decisions. Keywords: Resource Consumption Accounting, Activity Based Costing, Time Driven Activity Based Costing, German Cost Accounting.