Use of Time-Driven Activity Based Costing (TDABC) in Measuring the Costs of Banking Activities to Improve their Competitive Position

Abstract

The problem of allocating Overhead Costs in cost accounting has been the major subject of attention for many researchers for the past decades due to the influence of the adopted methods in the allocating process on the accuracy of the unit cost of the product or service and then on the pricing process. As a result of the invalidity of cost-centers theory, cost-based activity (ABC) has emerged as a solution to cost allocation problem. However, the need to update (ABC) continuously so as to cope with the changing conditions proved to be difficult and of very high cost. This requires re-interviewing, direct observation and other means used to keep the system in line with changes in the company's operations. Otherwise, system outputs of cost information become inaccurate and not useful when making decisions. Kaplan, and Anderson in 2004 solved this problem by developing an Activity-Based costing to avoid earlier problems known as Time-Driven Activity-Based Costing (TDABC).

The target of this research is to apply Time-Driven Activity-Based Costing (TDABC) on banking in order to increase the accuracy of measuring the cost of banking service provided to customers in Saudi banks so as to improve their strategic position, competitive advantage and help them continue and stay strong in the business environment. The results of the research indicate that the application of (TDABC) on one of the banks in the Kingdom of Saudi Arabia has raised its utilized capacity up to 88%. Noteworthy, the cost to which banking activities should be charged is based on the ratio of utilized practical capacity which will lead to avoiding distortions in determining the unit cost, and help the bank's Administration to benefit from the unutilized capacity.