Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company
S. R. ANDERSON
Purpose: The purpose of this paper is to study whether time-driven Activity-based Costing (ABC) is more appropriate to capture the complexity of logistics transactions than traditional ABC. Methodology: This paper explores the method of time-driven ABC and presents the results of a case study at a distribution company. Findings: The case shows that a traditional ABC was not appropriate. Almost 60% of the activities contained more than one subtask, with different time drivers. Ignoring this complexity resulted in a misallocation of 54% of costs. Splitting-up all the subtasks resulted in a traditional ABC model that was too complex. Contrary, the time-driven ABC model captured the full complexity of the logistics transactions through time equations that employ multiple time drivers. Research implications: This paper formulates the underlying mathematical model of timedriven ABC, leading to a better understanding of the time equations. Different types of complexities in logistics were identified in the case. Practical implications: The study explains the technique of time-driven ABC and provides some real company examples of time equations in logistics. Value of the paper: This is one of the first papers on time-driven ABC in a European context. The mathematical representation allows to a better understanding of this new costing technique and provides a new methodology to model complexity of logistics activities.
Logistics, Time-driven Activity-based Costing, time equations, mathematical model, complexity
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