Comparison of cost determination of both resource consumption accounting and time-driven activity-based costing systems in a healthcare setting
Hasan Özyapıcı A C and Veyis Naci Tanış BA Department of Business Administration, Eastern Mediterranean University, Famagusta, North Cyprus, Via Mersin 10, Turkey.
B Department of Business Administration, Çukurova University, Balcalı 01330, Seyhan-Adana, Turkey. Email: veyisnaci@cu.edu.tr
C Corresponding author. Email: hasan.ozyapici@emu.edu.tr
Australian Health Review 41(2) 201-206 https://doi.org/10.1071/AH15046
Submitted: 4 March 2015 Accepted: 22 March 2016 Published: 2 June 2016
Abstract
Objective The aim of the present study was to explore the differences between resource consumption accounting (RCA) and time-driven activity-based costing (TDABC) systems in determining the costs of services of a healthcare setting.
Methods A case study was conducted to calculate the unit costs of open and laparoscopic gall bladder surgeries using TDABC and RCA.
Results The RCA system assigns a higher cost both to open and laparoscopic gall bladder surgeries than TDABC. The total cost of unused capacity under the TDABC system is also double that in RCA.
Conclusion Unlike TDABC, RCA calculates lower costs for unused capacities but higher costs for products or services in a healthcare setting in which fixed costs make up a high proportion of total costs.
What is known about the topic? TDABC is a revision of the activity-based costing (ABC) system. RCA is also a new costing system that includes both the theoretical advantages of ABC and the practical advantages of German costing. However, little is known about the differences arising from application of TDABC and RCA.
What does this paper add? There is no study comparing both TDABC and RCA in a single case study based on a real-world healthcare setting. Thus, the present study fills this gap in the literature and it is unique in the sense that it is the first case study comparing TDABC and RCA for open and laparoscopic gall bladder surgeries in a healthcare setting.
What are the implications for practitioners? This study provides several interesting results for managers and cost accounting researchers. Thus, it will contribute to the spread of RCA studies in healthcare settings. It will also help the implementers of TDABC to revise data concerning the cost of unused capacity. In addition, by separating costs into fixed and variable, the paper will help managers to create a blended (combined) system that can improve both short- and long-term decisions.
References
[1] Johnson HT, Kaplan RS. The rise and fall of management accounting. Manage Acc 1987; 68 22–31.[2] Baxendale SJ. Activity-based costing for a claims processing operation. CPCU J 1999; 52 84–8.
[3] Kaplan RS, Anderson SR. Time driven activity based costing: a simpler and more powerful path to higher profits. Boston: Harvard Business School Press; 2007.
[4] Kaplan RS, Anderson SR. The innovation of time-driven activity based costing. Cost Manage 2007; 21 5–15.
[5] Grasso LP. Are ABC and RCA accounting systems compatible with lean management? Manage Account Quart 2005; 7 12–27.
[6] Mackie B. Merging GPK and ABC on the road to RCA. Strategic Financ 2006; 88 33–9.
[7] Van Der Merwe A, Keys DE. The case for resource consumption accounting. Strategic Financ 2002; 83 30–6.
[8] White L. Resource consumption accounting: manager-focused management accounting. J Corp Account Finance 2009; 20 63–77.
| Resource consumption accounting: manager-focused management accounting.Crossref | GoogleScholarGoogle Scholar |
[9] Wang Y, Zhuang Y, Hao Z, Li J. Study on the application of RCA in college education cost accounting. Int J Bus Manage 2009; 4 84–8.
| Study on the application of RCA in college education cost accounting.Crossref | GoogleScholarGoogle Scholar |
[10] Ahmed SA, Moosa M. Application of resource consumption accounting (RCA) in an educational institute. Pakistan Bus Rev 2011; 12 755–75.
[11] Wegmann G, Nozile S. The activity-based costing method developments: state-of-the art and case study. IUP J Account Res Audit Pract 2009; 8 7–22.
[12] Keys DE, Van Der Merwe A. Gaining effective organizational control with RCA. Strategic Financ 2002; 83 41–7.
[13] Webber S, Clinton BD. Resource consumption accounting applied: the Clopay case. Manage Account Quart 2004; 6 1–14.
[14] Gurowka J, Lawson RA. Selecting the right costing tool for your business needs. J Corp Account Finance 2007; 18 21–7.
| Selecting the right costing tool for your business needs.Crossref | GoogleScholarGoogle Scholar |
[15] Tse M, Gong M. Recognition of idle resources in time-driven activity-based costing and resource consumption accounting models. J Appl Manage Account Res 2009; 7 41–54.
[16] Balakrishnan R, Labro E, Sivaramakrishnan K. Product costs as decision aids: an analysis of alternative approaches (Parts 1 and 2). Account Horiz 2012; 26 1–20.
| Product costs as decision aids: an analysis of alternative approaches (Parts 1 and 2).Crossref | GoogleScholarGoogle Scholar |
[17] Hoozee S, Bruggeman W. Identifying operational improvements during the design process of a time-driven ABC system: the role of collective worker participation and leadership style. Manage Account Res 2010; 21 185–98.
| Identifying operational improvements during the design process of a time-driven ABC system: the role of collective worker participation and leadership style.Crossref | GoogleScholarGoogle Scholar |
[18] Dalcı İ, Tanış VN, Koşan L. Customer profitability analysis with time-driven activity-based costing: a case study in a hotel. Int J Contemp Hosp Manag 2010; 22 609–37.
| Customer profitability analysis with time-driven activity-based costing: a case study in a hotel.Crossref | GoogleScholarGoogle Scholar |
[19] Kaplan RS, Anderson SR. Time driven activity based costing. Harv Bus Rev 2004; 82 131–8.
| 15559451PubMed |
[20] Pernot E, Roodhooft F, Van den Abbeele A. Time driven activity based costing for inter-library services: a case study in a university. J Acad Librariansh 2007; 33 551–60.
| Time driven activity based costing for inter-library services: a case study in a university.Crossref | GoogleScholarGoogle Scholar |
[21] Baghbanian A, Hughes I, Khavarpour FA. Resource allocation and economic evaluation in Australia’s healthcare system. Aust Health Rev 2011; 35 278–83.
| Resource allocation and economic evaluation in Australia’s healthcare system.Crossref | GoogleScholarGoogle Scholar | 21871187PubMed |
[22] Kaplan RS, Haas DA. How not to cut health care costs. Harv Bus Rev 2014; 92 116–22.
| 25509507PubMed |
[23] Kaplan RS, Porter ME. How to solve the cost crisis in health care. Harv Bus Rev 2011; 89 46–64.
| 21939127PubMed |
[24] Kaplan RS, Anderson SR. The speed-reading organization. Bus Financ 2007; 13 39–42.
[25] Alexander JA, Burns LR, Morrisey MA, Johnson V. CEO perceptions of competition and strategic response in hospital markets. Med Care Res Rev 2001; 58 162–93.
| CEO perceptions of competition and strategic response in hospital markets.Crossref | GoogleScholarGoogle Scholar | 1:STN:280:DC%2BD3MzjtFalsg%3D%3D&md5=83083cbda569724c4624bee272898a88CAS | 11398645PubMed |
[26] Pan J, Qin X, Li Q, Messina JP, Delamater PL. Does hospital competition improve health care delivery in China? China Econ Rev 2015; 33 179–99.
| Does hospital competition improve health care delivery in China?Crossref | GoogleScholarGoogle Scholar |
