Manash R. Ray

Time‐Based Costing: Part 1—Costing for a Dynamic Business Environment

Todays dynamic business environment mandates a focus on time as a primary basis for analysis of revenue, cost, and profitability of products and services. Time-based costing analyzes the flow rates of money into and out of a company (or profit center), taking into account fluctuations in those flow rates. Conventional costing methods can lead to wrong predictions of the profitability of a product or service offered because they neglect the effect of fluctuations in the rates of money flow. This article, the first of a series of two related articles, uses calculated examples and general explanation to illustrate the approach. The flow rates of money are linked to the flow rates of the products or services that a company sells, which can be inhibited by bottlenecks. This connection between time-based costing and the theory of constraints is introduced in this article, then explained in more detail in the second article of the series.© 2000 John Wiley & Sons, Inc.