Time-Based Activity-Based Costing Activity-Based Costing (ABC ) is a costing method that is typically used as a supplement to a company's usual costing system and is therefore used for internal decision-making. It is designed to inform managers of information on the costs of decisions (strategic and otherwise) that potentially affect capacity and therefore "fixed" as well as variable costs. Additionally, ABC can also be used to identify activities that would benefit from process improvements. Traditional ABC Problems Traditional activity-based costing is implemented by following the following steps [1]: Define activities, activity cost pools, and activity measures. Assign overhead costs to activity cost pools. Calculate activity rates. Assign overhead costs to cost objects using activity rates and activity metrics. Prepare management reports. Implementing a traditional ABC system is a large, resource-intensive project. This works well in a smaller environment such as a single department, factory or site; however, its continued large-scale use becomes quite cumbersome. Once implemented, ABC is expensive to maintain and update because it consists of data regarding numerous activity metrics that are periodically collected, verified, and entered into the system. As a result, the systems put in place for ABC are rarely updated and model estimates of process, product and customer costs quickly become inaccurate. Furthermore, the complexity of actual operations tends to be neglected by traditional ABC models. Additionally, estimated cost factor rates in traditional ABC models are typically overestimated, because cost factor rates are often calculated assuming resources are... average. of paper......and cheaper to implement, but also much more precise. The time-based ABC approach therefore allows costs to be better distributed across a given activity, customer, location or product. Additionally, temporal ABC helps identify unused capacity, thereby enabling operational improvements and detection of non-value-adding activities. References:[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.[2] Stout, David E., Propri, Joseph M., Implementing Time-Based Activity-Based Costing in a Mid-Size Electronics Company, Management Accounting Quarterly, Vol. 12, no. 3, spring 2011.[3] Robert S. Kaplan and Steven R. Anderson, Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, Harvard Business Publishing, Boston, Mass.., 2007.