Traditional cost systems cause cost distortions because they cannot meet the requirements of today’s businesses. Therefore, a new and more effective cost system is needed. Consequently, time-driven activity-based costing system has emerged. The unit cost of supplying capacity and the time needed to perform an activity are the only 2 factors considered by the system. Furthermore, this system determines unused capacity by considering practical capacity. The purpose of this article is to emphasize the efficiency of the time-driven activity-based costing system and to display how it can be applied in a health care institution. A case study was conducted in a private hospital in Cyprus. Interviews and direct observations were used to collect the data. The case study revealed that the cost of unused capacity is allocated to both open and laparoscopic (closed) surgeries. Thus, by using the time-driven activity-based costing system, managers should eliminate the cost of unused capacity so as to obtain better results. Based on the results of the study, hospital management is better able to understand the costs of different surgeries. In addition, managers can easily notice the cost of unused capacity and decide how many employees to be dismissed or directed to other productive areas.
Author Affiliations: Faculty of Economics and Administrative Sciences, Department of Business Administration, Bahçeşehir University, İstanbul (Dr Öker); and Cyprus Faculty of Economics and Administrative Sciences, Department of Business Administration, International University, Lefkoşa, Mersin, Turkey (Dr Özyapici.
An earlier draft of the article was presented at “MODAV 6 Annual International Accounting Conferences,” held in Istanbul, Turkey, on December 4, 2009. It was a great chance for authors to get valuable suggestions and comments for analyzing and improving the study.
The authors have no conflicts of interest.
Correspondence: Hasan Özyapici, PhD, Faculty of Economics and Administrative Sciences, Department of Business Administration, Cyprus International University, Lefkoşa, Mersin 10, Turkey (firstname.lastname@example.org).