While highly accurate, traditional ABC systems can be difficult and expensive to maintain in large enterprises. They require constant staff surveys to reallocate employee time across activities, struggle to handle changing operations, and fail to account for paid employee time that goes unused (idle capacity).

Developed by Robert Kaplan and Steven Anderson, Time-Driven Activity-Based Costing (TDABC) simplifies the allocation process. Instead of surveying employees about time percentages, TDABC requires managers to estimate just two operational variables:

First, calculate the Capacity Cost Rate for a department or team:

Capacity Cost Rate ($/minute) = (Total department resource cost) ÷ (Practical working time in minutes)

Next, trace costs to products based on the time required to handle specific transactions:

• Allocated Cost = the cost assigned to a specific activity/transaction.
• Capacity Cost Rate = the department’s cost per minute of practical capacity (i.e., how much you spend to supply operational capacity).
• Standard Time Required for Activity = how many minutes it normally takes to complete that activity.

Because TDABC compares actual time used against total practical capacity, it automatically highlights unused resources. If a department supplies 100,000 minutes of labor but transactions consume only 80,000 minutes, the software flags 20,000 minutes of unallocated idle capacity cost, alerting management to overstaffing.