Time-Driven Activity-Based Costing

CHAPTER THREE

CAPAC ITY COST RATES

The Practical Issues

MEASURING THE COST of supplying a department’s resource capacity is the second principal calculation in a Time-Driven Activity-Based Cost model. We use capacity cost rates, calculated as the ratio of departmental costs to practical capacity, to drive resource costs down to orders, products, and customers. The numerator aggregates all the costs associated with a department, including the compensation of frontline employees and their supervisors; occupancy, technology, and other equipment costs; and the costs of corporate staff functions that support the work performed in the department. In the customer service department example used in chapter 1, these costs totaled $567,000 per quarter. ...