Time driven activity based costing as a modern costing methodology and a sample on a firm operating in the automotive sector

Since the middle of 1980s, it has begun to be accepted that the traditional costing system could not adapt to the changing structure of production and could not offer an efficient and accurate cost information. To eliminate the shortcomings of traditional costing systems and as a more effective cost approach to changing production techniques, Activity Based Costing (ABC) system has been proposed. However, the difficulties in the implementation and maintenance of the ABC system and its complex structure have prevented it from being an efficient, up-to-date, and innovative costing system. Overcoming the difficulties of ABC system, Time Driven Activity Based Costing (TDABC) system was developed as an innovative cost system that provides simpler, more accurate, and meaningful cost information and that can be more easily implemented and updated. Thus, the decisions taken by using a more realistic and accurate cost data will be more accurate. In this study, general production costs of a firm that produces automotive components have been distributed to the product lines according to the ABC system and then according to the TDABC system by using the case study method and the differences between the ABC and the TDABC system were revealed. Results of the study showed that the TDABC system produced lower cost compared to the ABC because it does not include the idle capacity cost to the product cost. The TDABC system calculates more accurate cost information while revealing the idle capacity. Therefore the TDABC attracts managers' attention to the areas where the idle capacities exist.