A Comparative Study of Traditional Activity-based Costing and Time-driven Activity-based Costing at a University Hospital in South Korea

Keun-Hyo Yook, Sung-Wook Yi, Il-woon Kim


Due to serious problems associated with activity-based costing (ABC), time-driven activity-based costing (TDABC) was recently suggested as a better alternative. TDABC is designed to enhance the objectivity of data collection and decrease time and cost as well. However, the accuracy of the allocated costs using TDABC has not been widely tested yet, particularly in the healthcare industry. The objective of this study is to review the differences between ABC and TDABC and apply both techniques to a university hospital in South Korea to evaluate the results of cost allocation of outpatient nursing activities in Pediatrics Department. It is shown that the allocated costs are not very different between the two techniques, which implies that TDABC can be effectively used to compute the cost of each patient accurately. The result of this study also demonstrates that, using TDABC, the visibility of unused resources will be improved at all levels of management in the hospital, and non-value added activities can be managed effectively using the information regarding the activity ratios of traditional ABC and TDABC. In addition, it is shown that the accurate cost report to each doctor can provide a motivation for doctors to improve their profitability.

Keywords: Activity-based costing; Time-driven activity-based costing, health care industry

DOI: 10.7176/RJFA/10-10-01

Publication date:May 31st 2019

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ISSN (Paper)2222-1697 ISSN (Online)2222-2847

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