INTERNATIONAL

CSIRO PUBLISHING
Australian Health Review, 2017, 41, 201–206
Case Study
http://dx.doi.org/10.1071/AH15046

Comparison of cost determination of both resource

consumption accounting and time-driven activity-based
costing systems in a healthcare setting

Hasan Özyapıcı1,3 PhD, Assistant Professor

Veyis Naci Tanış 2 PhD, Professor
1
Department of Business Administration, Eastern Mediterranean University, Famagusta, North Cyprus,
Via Mersin 10, Turkey.
2
Department of Business Administration, Çukurova University, Balcalı 01330, Seyhan-Adana, Turkey.
Email: veyisnaci@cu.edu.tr
3
Corresponding author. Email: hasan.ozyapici@emu.edu.tr

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.

Received 4 March 2015, accepted 22 March 2016, published online 2 June 2016

Introduction in current business environments.1,2 Therefore, an activity-based

The success of a company, especially in a highly competitive
environment, is closely related to the cost system used by that
company. This is because decision-making processes concerned
with a product or service are based primarily on data obtained
by the cost system used.
Traditional cost systems (TCS), such as job order costing and
process costing, have been used to provide data about the cost
of products or services. However, TCS, which are primarily
volume based, have started to produce distorted cost information
because of the fact that non-volume-related overhead costs,
which cannot be properly allocated using volume-related cost
drivers, have increased as a result of technological advances
costing (ABC) system has emerged as an alternative to
TCS. Despite its advantages, ABC has some drawbacks, such
as difficult updating process, or it is theoretically inadequate
because it does not take the possibility of unused capacity into
account.3 As a result, the ABC system has been revised and a
new cost system, namely time-driven activity-based costing
(TDABC), has been developed in the US by Robert S. Kaplan
and Steven R. Anderson.4
Alternatively, the German Grenzplankostenrechnung (GPK)
approach, which is a flexible margin costing, has been combined
with ABC to create a comprehensive costing system.5,6 As a
result of this combination, a new and advanced costing system,

Journal compilation
AHHA 2017 www.publish.csiro.au/journals/ahr

202 Australian Health Review
namely resource consumption accounting (RCA), has been de-
veloped in Germany.7
TDABC is a new system that is simpler, cheaper and more
accurate than conventional ABC.4 TDABC provides a simpler
alternative than the conventional ABC because it needs only two
parameters: (1) the capacity cost rate for a department; and (2) the
capacity usage by each transaction processed in the department.3
Consequently, the time needed to perform an activity and the cost
of unit time are the basic parameters required by the users of this
system.
Conversely, RCA is a comprehensive, dynamic and fully
integrated management accounting system.7 This system not
only facilitates the management of resource capacities, but also
points out the causal relationships between resources and cost
object, that is anything, such as a good, service, or customer, for
which a cost measurement is done. This system also provides
managers with insights into resources, resource capacities and
their consumption.8 Various authors have noted that RCA is a
new accounting system that includes both the theoretical advan-
tages of ABC and the practical advantages of GPK,9 that it has
the advantages of the process view because of its integration of
the ABC system10 and that it helps managers easily assign
resource costs to activities by classifying resources into several
resources pools.11 Furthermore, it has been demonstrated that
RCA permits managers to take effective control in an organisa-
tion.12 In addition, because of resource-level considerations,
RCA has the ability to differentiate product cost results13 and it
has been suggested that RCA is a detailed and strategic system
that may be an appropriate costing tool for an organisation to
better understand and manage the cost of unused capacity.14
Unlike TDABC, which assumes that all resource costs are
variable, RCA evaluates resource costs as either fixed or vari-
able.15 Furthermore, although TDABC uses only activity-based
cost allocation, RCA allows both activity- and volume-based cost
allocation.15
Even though there has been considerable research on the
characteristics, fundamentals and implementation of both
TDABC and RCA,11,15,16 to the best of our knowledge there is
no conclusive research comparing these systems in a real-world
healthcare setting. Thus, the present study fills this gap in the
literature, being the first case study comparing TDABC and
RCA in both open and laparoscopic gall bladder surgeries in
a healthcare setting. In this regard, the main purpose of the
present study was to explore differences between TDABC and
RCA in determining the costs of services in a real-world health-
care setting.
Methods
Because a case study method enables researchers to have direct,
in-depth and extended contact with participants,17 it can be used
to explore the application of new systems.18 Therefore, a case
study was conducted in order to explore the differences between
TDABC and RCA for hospitals. A descriptive case study was
first conducted to identify the accounting structure of the hospital.
An exploratory case study was then used to analyse the applica-
bility and distinctive characteristics of the new cost systems.
The case study hospital, ‘Hospital BCD’ (to maintain confi-
dentiality, the official name of the hospital is not presented), is
H. Özyapıcı and V. N. Tanış
a well-equipped private hospital located in Famagusta, an eastern
coastal province of Cyprus. The present study was interested in
the costs of open and laparoscopic gall bladder surgeries per-
formed in the general surgery department.
In order to apply the TDABC system, the activities performed
in a hospital, the subtasks (tasks within the activities) and the time
(minutes) needed to perform these activities or subtasks were first
identified. The practical capacities of employees performing
activities or subtasks were then determined. It is also important
to emphasise that the practical capacity, which is the capacity for
productive and useful work, is generally accepted in the cost and
managerial accounting literature as 85% or 80% of the theoretical
capacity. This is because employees, in general, spend approx-
imately 15% or 20% of their time on breaks, training and
communication.19,20 In light of this, comprehensive observations
and interviews were undertaken to properly estimate the practical
capacities of employees performing the nine activities of the
general surgery department, namely patient admission and dis-
charge, medical examination, laboratory tests, presurgical ultra-
sound examination, nursing services before hospitalisation,
surgery, nursing services after hospitalisation, meal services and
patient satisfaction and the discharge process. Then, the costs of
activities or subtasks were divided by the practical capacities of
employees to calculate the cost per minute. Finally, the cost per
minute was multiplied by the time needed to perform an activity or
subtask in order to calculate the cost to be allocated to gall bladder
surgeries.
In order to implement the RCA system, resources were first
collected into resource pools. There are seven resource pools for
RCA: management costs, medical instrument costs, building
costs, daily costs, general medical material costs, cafeteria costs
and information system costs. By considering the relationship
between costs and cost objects (open and laparoscopic gall
bladder surgeries), each cost found in resource pools was clas-
sified as either fixed or variable. For example, without considering
the number of patients, the accounting department of the hospital
pays a fixed amount to paramedics for each month, so the
paramedics cost was classified as a fixed cost. Second, fixed and
variable costs for each resource pool were separated. Third, the
consumption of resources by the activities performed in the
general surgery department was identified. Fourth, variable re-
source costs were allocated to activities and activities costs were
allocated to products to enable short-term strategic decisions
which are to be made, in general, within a year. Fifth, total
resource costs were allocated to activities and then products in
order to enable long-term decisions to be made over a period of
time longer than 1 year. Data were obtained from comprehensive
observations and interviews conducted regularly with study
participants, including administrators, surgeons, assistant doc-
tors, anaesthetists, theatre nurses, nurses, customer service repre-
sentatives, paramedics, laboratory personnel, radiologists and
patients throughout the period of 1 year.
Results
The results obtained using the TDABC and RCA systems are
summarised in Table 1.
Comparing RCA (long term) with TDABC, the RCA system
assigned a higher cost to both open and laparoscopic gall
RCA and TDABC in a healthcare setting Australian Health Review 203

bladder surgeries. As indicated in Table 1, the cost of open gall results to those obtained using TDABC. Indeed, the difference
bladder surgery increased from 2927.902 Turkish lira (TL) between the practical capacity of the resources supplied for an
using TDABC to 3063.913 TL using RCA, whereas the cost of activity and the time needed to perform this activity is consid-
laparoscopic gall bladder surgery increased from 2134.475 to ered to indicate the unused capacity under the TDABC sys-
2273.735 TL, respectively. As indicated by percentage differ- tem.24 Conversely, under the RCA system, unused capacity is
ences between RCA (long term) and TDABC (Table 1), open and
laparoscopic gall bladder surgery costs 4.64 and 6.52% more,
respectively, using the RCA than TDABC system. Table 1. Results obtained using the time-driven activity-based costing
(TDABC) and resource consumption accounting (RCA) systems
In the short term, unlike TDABC, RCA can assign lowest costs
TL, Turkish lira
to open and laparoscopic gall bladder surgery to 2494.025 and
1883.36 TL, respectively (Table 1). Thus, percentage differences Open gall Laparoscopic gall
for open and laparoscopic gall bladder surgery are 14.82% and bladder surgery bladder surgery
11.76% less, respectively, using the RCA (short term) than TDABC
TDABC system. Direct cost (TL) 2150 1690
Indirect cost (TL) 777.90 444.48
Discussion Total cost (TL) 2927.90 2134.48
It is a challenging task for policy makers and legislators to RCA (long term >1 year)
recognise the optimal allocation of resources to improve the Direct cost (TL) 2150 1690
Indirect cost (TL) 913.91 583.735
quality of healthcare decision making.21 Therefore, hospital
Total cost (TL) 3063.91 2273.735
administrators can use an accurate costing system to reduce RCA (short term <1 year)
the high costs of unused capacity and improve patient out- Direct cost (TL) 2150 1690
comes.22,23 The TDABC and RCA systems, in contrast with Indirect cost (TL) 344.03 193.36
TCS and ABC, consider the unused capacities incurred in the Total cost (TL) 2494.03 1883.36
hospital. However, the amount of unused capacities calculated Absolute and percentage differences between total TDABC and RCA costs
by the systems differs. This is because TDABC, which is a two- TDABC vs RCA (long term)
stage costing system (first allocating costs to activities and then Absolute difference (TL) 136.01 139.26
to products or services), takes unused capacity into account in % Difference 4.64 6.52
the second stage, in which costs of activities are assigned to TDABC vs RCA (short term)
Absolute difference (TL) 433.88 251.12
products or services. Thus, the RCA system, which considers
% Difference 14.82 11.76
the unused capacity of resources originally, produces different

Table 2. Costs of unused capacities under the time-driven activity-based costing system
TL, Turkish lira

Committed Allocated Cost of unused

cost (TL) cost (TL) capacity (TL)
A1: Patient admission and discharge 1507.85 760.28 747.57
Paramedics 477.01 426.96 50.06
Customer service representative 1030.84 333.32 697.52
A2: Medical examination 6138.61 2156.07 3982.54
Surgeon 6138.61 2156.07 3982.54
A3: Laboratory tests 1442.99 1385.42 57.59
Laboratory personnel 1442.99 1385.42 57.59
A4: Presurgical ultrasound examination 1063.42 1007.51 55.91
Radiologist 1063.42 1007.51 55.91
A5: Nursing services before hospitalisation 2780.59 2603.74 176.85
Nurses 2780.59 2603.74 176.85
A6: Surgery 11 763.16 4801.56 6961.60
Surgeon 3228.29 1674.02 1554.27
Assistant doctor 4028.29 1101.49 2926.8
Anaesthetist 2328.29 1516.29 812.05
Theatre nurses 2178.29 509.81 1668.48
A7: Nursing services after hospitalisation 2571.42 2493.36 78.06
Nurses 2571.42 2493.36 78.06
A8: Meal services 2973.95 2222.71 751.24
Cafeteria staff 2973.95 2222.71 751.24
A9: Patient satisfaction and the discharge process 2058.68 1362.41 696.27
Assistant doctor 1149.22 472.56 676.66
Nurses 909.46 889.85 19.61
Total 32 300.67 18 793.06 13 507.61
204 Australian Health Review H. Özyapıcı and V. N. Tanış

Table 3. Costs of unused capacities under the resource consumption accounting system
TL, Turkish lira

Resource pool Committed Allocated Cost of unused

cost (TL) cost (TL) capacity (TL)
1. Management costs 20 218 16 259.47 3958.53
Surgeon 6000 4160 1840
Anaesthetist 1500 1500 0
Assistant doctor 4000 2850 1150
Customer service representatives 650 650 0
Theatre nurses 1350 1350 0
Nurses 4481.90 4071.41 410.49
Gardener 30 30 0
Cafeteria staff 971.10 613.06 358.04
Paramedics 260 260 0
Laboratory personnel 375 375 0
Radiologists 600 400 200
2. Medical instruments 2180.82 2180.82 0
3. Building costs 3725 3656 69
Insurance 150 150 0
Depreciation 200 200 0
Maintenance and repair 50 50 0
Cleaning 725 725 0
Electricity 2600 2531 69
4. Daily costs 914 887.86 26.14
Water consumption 60 46.40 13.60
Communication 200 187.46 12.54
Laundry 150 150 0
Accounting department 468 468 0
Office requisites and miscellaneous 36 36 0
5. General medical material costs 3240 2975.61 264.39
6. Cafeteria costs 1867.50 1157.85 709.65
7. Information system costs 155 155 0
Total 32 300.32 27 272.61 5027.71

the difference between available resources and consumed
resources.15
As can be seen in Tables 2 and 3, the total cost of unused
capacity under TDABC is 13507.604 TL, compared with 5027.71
TL under RCA. Hence, it can be deduced that the total cost of
unused capacity under TDABC is more than double that under
RCA. Indeed, TDABC first assigns all overhead costs to activ-
ities. Then, without separating fixed and variable costs, all activity
costs are divided by practical capacities to find out capacity cost
rates. Because activity costs include fixed costs, the capacity cost
rates will be higher than they should be. Indeed, fixed costs are
independent of the work performed, so these costs should not be
allocated proportionally to the unused capacity cost. Then, the
difference between the practical capacity and the time needed by
the job will be multiplied by the capacity cost rate to calculate the
cost of unused capacity. Based on these considerations, the
present study concludes that the unused capacities of resources
under TDABC are overestimated compared with the RCA
system.
Conclusion
Unlike the TCS and ABC systems, both the TDABC and RCA
systems consider the unused capacities found in a hospital.
Because fixed costs are independent of the volume of output,
these costs are excluded from the cost of unused capacity under
the RCA system. However, TDABC does not separate costs
into fixed and variable costs, so allocating costs of activities
including fixed costs by considering the time needed by each
patient may lead to inaccurate results. This is due to the fact
that the time needed per patient should always be independent
of the fixed cost within the relevant range. For healthcare
settings implementing TDABC, the findings demonstrate that
fixed costs should be excluded from the cost of unused
capacity. To illustrate, the general surgery department of the
case hospital made an agreement with an anaesthetist to pay
him 1500 TL per month. This is a fixed cost, so considering the
time spent with each patient for the anaesthetist becomes
meaningless. In addition, when the building insurance and
building depreciation costs are considered, it can be said that
these costs are also fixed. That is, regardless of the number of
patients, the general surgery department incurs these costs. In
this regard, fixed costs should be excluded in the measurement
of unused capacity.
A comparison of RCA (long term) and TDABC showed that
the RCA system calculates a higher cost than TDABC in a
hospital in which fixed costs make up a high proportion of total
costs. This is because the unused capacity, which is incurred only
by resources that have variable cost, and the cost of a product or
service are inversely correlated. Because the cost of unused
RCA and TDABC in a healthcare setting
capacity should not be allocated to the cost object, the system
calculating higher amounts of unused capacity yields lower
values of product or service cost.
A comparison of RCA (short term) and TDABC also showed
that RCA excludes all fixed cost in order to set the lowest selling
price. Therefore, the present study concluded that although
TDABC produces results that can be used only when making
long-term decisions, RCA produces results that can be used to
make both short- and long-term decisions. Thus, it can be said
that because RCA provides alternative values for selling price
for a short period of time, it is a more flexible system than
TDABC. In addition, by providing the lowest selling price, RCA
helps companies improve their competitive positions. In Cyprus,
for example, private hospitals face fierce competition. Thus,
providing them with an opportunity to keep prices as low as
possible for a short period of time may increase the total number
of patients served. Indeed, Alexander et al.25 stated that unused
capacities arise in hospitals when demand for healthcare services
decreases, so hospitals have an incentive to offer lower prices
to minimise unused capacity. A recent study by Pan et al.26 also
revealed that competition in the healthcare sector is associated
with lower prices, as well as higher quality. Therefore, the lowest
cost strategy provided by RCA shown in the present study may
enable hospitals to enhance their competitive advantage by
offering lower selling prices with the same quality of services.
Conversely, in the long run, providing insight into measuring
unused capacity enables managers to eliminate the unused ca-
pacity of employees by reducing their working hours or by
directing them to other areas. Determination of unused capacity
also helps managers identify cost reduction opportunities.
The present study also showed that the RCA system can be
applied in a service company. The idea of RCA can increase the
flexibility of companies having distinct costing systems. That
is, the principles of RCA, such as using both volume-based and
non-volume-based cost drivers or separating costs into fixed and
variable components, can be integrated with the existing costing
systems. In this regard, the present study demonstrated that a
company using a TDABC system can separate costs into fixed
and variable costs so as to obtain results for making short-term
decisions.
Like most research studies, the present study has several
limitations. First, because of time constraints, the study was
performed in the general surgery department of a private hospital
in Cyprus only. However, because it is an advanced system that
has the same logic for any department, managers need only time
gaps to implement this system to all parts of the hospital. Second,
the RCA system uses the replacement cost depreciation method.
However, because it is a time-consuming and expensive task
to determine replacement values, historical cost data were used.
Nevertheless, by using the same historical cost data, the differ-
ences between RCA and TDABC were clearly shown. In this
regard, by overcoming the limitations of the present study, a
future study could be conducted in other healthcare settings
within or outside Cyprus in order to make the results more
generalisable. Further, a replication study could help researchers
and hospital administrators to see whether the present
preliminary pilot study would be applicable to all healthcare
providers and whether RCA yields different results from those
obtained using TDABC. It is also recommended that many
Australian Health Review 205
management accounting systems, such as balanced scorecard,
quality cost or TDABC, are used in addition to the RCA system
to create a blended approach to provide additional insights.
Competing interests
None declared.
Acknowledgements
The authors are grateful to the managers and employees of the hospital
investigated for their participation in this study. Without their support, this
study would not have been possible.
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