Two parameters cost the whole shop floor.
Time-driven activity-based costing needs only two things on the factory floor: a capacity cost rate for each resource group, and time equations that describe how each product consumes time. No surveys, no thousand standard rates to maintain. The equation captures what a standard rate cannot, how the same operation costs different amounts depending on run size, changeovers and quality requirements.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
TDABC for manufacturing uses a capacity cost rate per resource group and a time equation per product, with setup, changeover and quality as conditional terms. It needs no timesheet surveys and adapts automatically to run size and product mix. In practice, manufacturers applying TDABC report around 16 to 17 percent higher productivity and around 3 percent lower cost, because cost finally lands on the activities that drive it rather than on an average.
The equation reads the drivers, not the average.
A time equation describes a product as the work it actually requires: a fixed setup per run, run minutes per unit, a changeover when the line switches, an inspection when the item is critical. Each term maps to a real driver. The capacity cost rate, the cost of a resource group divided by its practical capacity, typically 80 to 85 percent of theoretical, turns those minutes into money. Change the run size or the mix and the cost recomputes on its own.
Illustrative. Setup per run, run minutes per unit, changeover only on a switch, quality only on a critical item. Two parameters, no surveys, and it updates as the work changes.
A single base smears a quarter to two-fifths of cost.
Overhead is 25 to 40 percent of production cost, and a single allocation base smears it, distorting product cost by 30 to 50 percent. Most manufacturers still carry that distortion in spreadsheets, where formula errors are common and the close runs two to four weeks late. TDABC moves the logic into a maintainable model and lets cost follow the activity, which is why the measured gain is real: roughly 16 to 17 percent higher productivity and around 3 percent lower cost where it is applied.
From two parameters to every product's cost.
Capacity cost rate
Cost of each resource group divided by its practical capacity, 80 to 85 percent of theoretical. Idle time shows as idle time, not a heavier rate on every unit.
Time equations
Setup per run, run minutes per unit, changeover and quality as conditional terms. The equation reads the drivers of each product and returns its minutes.
Attribute to the SKU
Each product carries the cost of how it is actually made, by batch size and complexity, not just the units that left the line.
Refresh, don't rebuild
When rates, capacity or mix move, you change a couple of numbers and the model re-prices. It is built to be run by your team.
Frequently asked questions
- What is TDABC for manufacturing?
- Time-Driven Activity-Based Costing uses a capacity cost rate per resource group and a time equation per product, with setup, changeover and quality as conditional terms. It needs no timesheet surveys and adapts automatically to run size and product mix, so cost lands on the activities that drive it rather than on an average.
- What gains do manufacturers see from TDABC?
- In practice, manufacturers applying TDABC report around 16 to 17 percent higher productivity and around 3 percent lower cost, because cost finally lands on the activities that drive it. Overhead is typically 25 to 40 percent of production cost, and a single allocation base distorts product cost by 30 to 50 percent, which is the gap TDABC closes.
- Do we need to leave spreadsheets behind?
- Most manufacturers still cost in spreadsheets, with formula errors common and close delays of two to four weeks. TDABC moves the logic into a maintainable model your team runs, built on the data you already hold, without a new system or a lengthy data-collection project.
Turn the data you already hold into true cost.
The Profit Check needs no data upload. It shows where a time-driven model would change the numbers you act on most.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Lectured alongside Professor Robert S. Kaplan at the CFO conference in Amsterdam (2009).
Call +351 910 313 731
