Question

TDABC is an activity-based costing that is also based on the function of time. In TDABC, we allocate the activity capacity based on how much time used for each activity.

There are two types of TDABC:

a. bottom-up TDABC (in which employees estimate the time associated with performing the activity once) --> leads to underestimation of time used

b. top-down TDABC (in which employees estimate the total time associated with the total practical capacity of the activity) --> leads to overestimation of time used

The question is why the underestimation/overestimation in TDABC occurs?

Answer 1

TDABC is called Time driven activity based costing. This means that the cost that is associated with each of process is analyzed via a process chart and each stage that is involved in delivering a service is analyzed as to what time has been consumed to give the service.

Suppose if a patient comes for a surgery then what will be the process of operating him, what will be the various stages that he/she need to go through to do a surgery.

Bottom UP

In this case the time is estimated by the employee that give services at a particular level of process map. In this case there is an underestimation of time to be used because only that time which is required by the employee is estimated without any provision for contingency. Or there may be a change that the employee that is giving the service is efficient much to reduce the time that is generally consumed by the other employee.

Top down.

In this case there will be always be an overestimation of time, because if a complete activity is performed by an employee then this will add to contingencies and an inefficient outcome.