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What is TDABC?

TDABC stands for Time-Driven Activity-Based Costing. TDABC is thus a method of cost and profitability calculations, which enables to reflect organization’s operations into a virtual reality and to produce detailed net profitability views of the business to facilitate decision-making.

TDABC allocates general ledger-based financial data to organizational resources and further uses operational data to drive costs to business transactions. Operational modeling and cost allocation is done at a level that genuinely drives the use of resources. In most cases, this is at the order line item detail, depending on the industry, of course. In many industries, up to 70% of indirect costs are order-driven and ordering is the only real connecting factor between the customer and the product. Modeling done at this level is automatically summed up when each order knows who the customer was, what products were ordered, and who is the supplier of those products. The operational data of ERP systems or datawarehouses can be utilized directly as an input data for the calculation model, which makes the calculation process efficient. Perhaps a more descriptive name for time-driven activity-based costing could be a transaction-based costing.

TDABC enables the modeling of an organization’s operations from the perspective of cost and profitability. The end result is a profit and loss statement describing the actual functions or processes of the organization, e.g. the profitability of customers and products, from which you can drill down to the profitability of an individual order or order line to identify root cause. The time element of TDABC enables the modeling of given and used time and thus the measurement of capacity. Well-constructed TDABC model serves as an excellent support for strategic and operational business decisions.

TDABC, time-based operations, product profitability, customer profitability