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Analysis of Restaurants’ Operations Using Time-Driven Activity-based

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DOI: 10.1080/1528008X.2020.1848745

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Analysis of Restaurants’ Operations Using Time-

Driven Activity-based Costing (TDABC): Case Study

Abdallah M. Elshaer

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JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM
https://doi.org/10.1080/1528008X.2020.1848745

Analysis of Restaurants’ Operations Using Time-Driven

Activity-based Costing (TDABC): Case Study
Abdallah M. Elshaer
Hotel Studies Department, Faculty of Tourism and Hotels, University of Sadat City, Sadat City, Egypt

ABSTRACT KEYWORDS
In today’s competitive environment, the analysis of activities is Restaurants; time-driven
not just about looking at the overall report of profit and loss but activity-based costing; value-
more in understanding which of the activities add value and added activities; value
stream mapping
which are identified as wastes. This study examines the imple­
mentation of Time-Driven Activity-based Costing (TDABC) to
analyze the operations of restaurants and also explores its validity
as an approach for mapping the value streams of the operational
activities. For this purpose, a case study is planned to reprocess
both direct and indirect costs of a restaurant using TDABC. Thus,
an observation process is performed to gather the relevant data,
besides investigating the case restaurant’s cost accounting sys­
tem. In this paper, two analytical techniques (TDABC & VSM) are
combined to identify both the true costs of the operational
activities as well as distinguishing the non-value-added activities.
The results have revealed that TDABC appears to be a very
feasible approach for both setting the correct cost of operations
in restaurants and mapping the source of value-added activities.

Introduction
Nowadays, foodservice industry is considered to be a primary industry all over
the world. In the USA for example, the restaurant industry (about 630,511
restaurants registered in 2015) has generated sales of almost 800 USD billion
with providing 14.4 million jobs in 2016 (the National Restaurant Association-
NRA, 2016). However, the foodservice enterprises are characterized by relative
high vulnerability rates and low-profit margins (Elshaer & Marzouk, 2019;
Parsa et al., 2005) due to the tough competition and the global, unprecedented
challenges. A major critical dilemma for restaurant managers is to create
a balance between earning a reasonable profit and satisfying their customers’
diverse demands (Kang et al., 2010). In this regard, costing approaches have
provided managers with a good comprehension of cost information that serves
in decision-making process and increase the profitability of their products
(Kuchta & Troska, 2007). There have been basic accounting and pricing
methods that utilized including traditional budgeting and menu engineering
analysis (Damitio & Schmidgall, 1990; Kasavana & Smith, 1982).

CONTACT Abdallah M. Elshaer [email protected] Hotel Studies Department, Faculty of

Tourism and Hotels, University of Sadat City, Sadat City, Egypt.
© 2020 Taylor & Francis Group, LLC
2 A. M. ELSHAER

In the current scenario which imposes emphasis on price and quality, restau­
rant managers had to reduce traditional accounting systems by creating more
advanced approaches to achieve profitable relations. Many academics intro­
duced activity-based costing (ABC) to a wide range of products (e.g., Basuki &
Riediansyaf, 2014; Kaplan & Cooper, 1999; Raab et al., 2007). The use of ABC
could enhance the definition and examination of the contribution margin of
each menu item (Cooper, 1989). The profitability image resulting from adopting
ABC analysis enables managers to direct their attention and resources to
recognize and replace certain unprofitable items, and cutting overpriced pro­
ducts (Charles & Hansen, 2008). However, the complexities of collecting and
tracking the costs of restaurant operations and activities abandon the adoption
of ABC (Kunst & Lemmik, 1995). As there are still some overhead costs such as
wages and salaries that need to be traced to individual item prices to determine
the real profitability of the product and deliver proper estimations of process and
item prices. In the Time Driven Activity-based Costing (TDABC), the method is
the same as traditional ABC, but all costs are measured using the time driver
(Kaplan & Anderson, 2013). In the context of the service sector, Ilhan and Tanis
(2009) reported that the application of TDABC could produce information
relevant to operational improvement and profitability analysis. TDABC has
been adopted in a wide range of service organizations such as health care
(Campanale et al., 2014), financial institutions (Dalci et al., 2010; Kaplan &
Norton, 2008), logistics and delivery (e.g., Somapa et al., 2012), and hospitality
institutions (e.g., Ardiansyah et al., 2017; Basuki & Riediansyaf, 2014).
TDABC has major advantages compared to other costing techniques as it
considers the time required to perform transactional activities, in addition to
being simple, less costly, and allows cost driver rates to be based on the real
capacity of the organization’s resources (Kaplan & Anderson, 2004).
Accordingly, Kumar and Mahto (2013) highly recommended adopting
TDABC in small-scale service-oriented organizations such as restaurants
and coffee shops. Therefore, this study introduces TDABC as an activity-
based costing system that helps restaurants’ managers to analyze and obtain
accurate costs information considering the time driver and the overhead costs.
In doing so, the study addresses three principal questions: (1) Can TDABC
technique trace all overhead costs to individual menu items; (2) Can TDABC
technique reveal time consumed to fulfill the restaurant activities; and, (3) Can
TDABC technique improve the real capacity of the restaurant?

Literature review
The need of restaurant sector for allocation -conscious costing system
Traditionally, foodservice organizations, and especially independently owned
enterprises are subject to close during their first steps in the business world
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 3

(Hume, 2002). Wilke et al. (1996) identified two main deficiencies that cause
restaurants failure: Poor costing control and ineffective marketing strategies.
In the restaurant industry, numerous operating costs constitute a significant
percentage of total expenses amounts, such as utilities and fixed costs (Bell,
2002; Defranco & Noriega, 2000). However, these indirect expenses are mostly
ignored when item prices are established (Kang et al., 2010) because of;

(1) The restaurant industry offers heterogeneous products and services

each accompanying different degrees of resource consumption that
may end with incorrect cost accumulation and pricing processes
(Terungwa, 2012).
(2) The ambiguous relationship between the cost pool and the practical
capacity of the supplied resources (Kumar & Mahto, 2013) and,
(3) The limited knowledge of restaurant managers relating to management
accounting (Pellinen, 2003).

Despite managers handling their customer’s demands professionally (Raab

et al., 2007), most of them are still unable to capture the true profit
generated from sales of their menu items (Raab & Mayer, 2003).
Accordingly, conventional costing methods have become outdated parti­
cularly when they induce indirect allocation of overhead costs (Sharma &
Gupta, 2010). It is vital therefore to use a time driver-costing system that
estimates the duration required to render each activity (Terungwa, 2012).
Using the TDABC technique, time for elementary activities included in
delivering the final product and service is simply estimated (Barros &
Costa Ferreira, 2017). Managers of restaurants must make good use of
time equations in TDABC to calculate the time taken to perform opera­
tional tasks within their restaurants (Terungwa, 2012), especially that time
is a valuable factor in satisfying customers’ needs.

Cost allocation techniques

Although costing allocation techniques are systems of fame for its costing role,
such a role is only a point of its principle functions (Khozein & Dankoob,
2011). It affects implementing and running the operations smoothly and
reaching goals successfully through enhancing critical decisions like design­
ing/compromising the restaurant menu, determining the product mix, and
pricing menu items in a way that simultaneously lead to operation success and
satisfying customers’ needs (Kang et al., 2010).
For this purpose, costing approaches have been utilized within foodservice
organizations including; traditional costing methods, ABC, and TDABC.
4 A. M. ELSHAER

Traditional costing methods

Numerous costing methods have been used in the restaurant business to
analyze menu prices. Several qualitative and quantitative costing approaches
are discussed in Hospitality Management Accounting (Jagels, 2007). These
qualitative methods are based on both “trial-and-error” and “market position­
ing perspectives,” while quantitative methods are categorized as profit and loss
oriented (Barnard, 2009). Regarding the qualitative approach, the intuitive
method that depends on the customer’s interactions with the offered items is
closely related to the trial-and-error perspective. While the rule-of-thumb
method in which the common industry average of items prices is accredited,
is often combined with market positioning perspective. On the other side, the
quantitative approach includes many methods (e.g., Gross Mark-up method,
Ratio method, Factor method, and Menu engineering method) that depend on
percentages of food cost, the volume of sales, and contribution margin in
determining the profit of each item (Pavesic, 1985). Based on the contribution
margin percentage, Kasavana and Smith (1982) divided menu items into four
groups (Star, Plowhouse, Puzzle, Dog).
Although these approaches suggested that restaurants’ managers can specify
the profitable items. But, in reality, item prices are not accurately analyzed
whether a qualitative or a quantitative approach is adopted (Raab & Mayer,
2003). According to Defranco and Noriega (2000), the significant operating
expenses (indirect resources, e.g., labor and fixed costs) are ignored when
menu prices are established using these approaches.

Activity-based Costing (ABC)

To address the shortcomings of conventional costing techniques, Kaplan and
Cooper (1999) advocated that the domain of traditional costing methods could
be significantly enhanced by using activity-based costing (ABC). ABC has
many advantages over conventional volume-based costing systems
(Baxendale et al., 1998; Raab et al., 2007), and is recommended to be used in
fast-service restaurants by Raab et al. (2007). The principal assumption of ABC
is that activities drive costs of any business by consuming its capitals and assets
(Adamu, 2010). It rather depends on configuring the relationship between
fixed costs and the operation that induces it. ABC has shown significant
development and a great contribution to cost management, particularly in
profitability analysis (Dimitropoulos, 2007; Lotfi & Mansourabad, 2012). Raab
et al. (2007) advocated that the use of ABC in full-service restaurants estab­
lished a specific overhead cost value for the menu item. Using ABC, managers
could identify the business ‘ value-added activities (VAT) and non-value-
added activities (NVAT), and the costs associated with those activities, in
addition to defining the drivers of activity costs (Carolfi, 1996). In the same
line, many academics claimed that adopting ABC helps in enhancing decision-
making processes (Chea, 2011; Lotfi & Mansourabad, 2012), improving
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 5

procedures, better forecasting of unused capacity costs (Lotfi & Mansourabad,

2012) and improving information planning (Mansur et al., 2012). However,
ABC building is associated with many drawbacks that kept its implementation
in service institutions being small compared to the traditional costing methods
(Askarany et al., 2007). Numerous researchers and management accountants
advocated that ABC technique is expensive to conduct, time-consuming and
challenging to change either during the implementation or revising process
(Drury, 2000; Kaplan & Anderson, 2004; Kaplan & Porter, 2011; Pavlatos &
Paggios, 2009; Tse & Gong, 2009), especially as it requires extra effort and
complete coordination across the organization; meaning that managers and
accountants have to take their time out of their daily activities to assist in the
ABC procedures. Also, ABC only incorporates operating costs into revenue
figures. It ignores the value of wasted use of services that should be allocated to
different cost items (Dalci et al., 2010). In addition to overstating overhead
costs for the purposes of decision-making (Soderstrom & Noreen, 1997).
Thus, the information gained from implementing activity-based costing is
not suitable to ensure the decisions of maintaining or enhancing long-term
profitability (Chen et al., 2013).

Time-Driven Activity-based Costing (TDABC)

TDABC is an emerging alternative costing technique that addresses all the
limitations of the traditional ABC. Under traditional ABC, each activity con­
sumes the same resources, while the key idea of TDABC is based on measuring
the time consumed to accomplish each activity (Terungwa, 2012), then the key
basis of TDABC simply gives more efficient estimate than the traditional ABC
method (Kaplan & Anderson, 2013, 2004; Kaplan & Porter, 2011) – see
Table 1. However, TDABC has been little investigated in academic studies
(Gervais et al., 2010). More specifically, although most of these studies are
conducted in service businesses and showed more reliable cost analysis, there
a significant lack in applying TDABC in restaurants (e.g., Everaert et al., 2012;
Terungwa, 2012). In his study about the practicability of TDABC on

Table 1. A simple distinction between TDABC, ABC, and traditional methods of costing.
TDABC ABC Traditional Costing
Concept An integration with value Assigning costs to activities, Costs are generally allocated on
stream methodology. then to cost objects. the basis of the volume.
Cost pools Less accounting Intensive financial measures. A limited number of cost pools.
transactions.
Cost drivers Accurate computation of Multiple cost drivers. Few cost drivers.
product unit costs.
Focus Managing value resources. Managing the cost impact of Managing departmental costs.
cross-functional activities.
Decision making Relating to value product Relating to the product level. Relating to cost level.
and process level.
Source: The researcher based on Kaplan and Anderson (2007); Turney (1991).
6 A. M. ELSHAER

restaurants’ profitability, Terungwa (2012) concluded that TDABC is an

emerging management framework for good tactical business decisions.
TDABC uses the practical capacity measurable time to calculate the
expenses of the committed resources in order to assign them to the cost
items (Rude, 2019). Kaplan and Anderson (2004) determined 80 −85% as
the amount of practical capacity with the remaining being allocated to rest,
meetings, and training sessions (Everaert et al., 2012; Kaplan & Anderson,
2004). On this basis, it simply distinguishes both the “used capacity” and the
“unused capacity” (Namazi, 2016). Accordingly, activities can be defined as
either VAT or NVAT after analyzing them through Value Stream Mapping
(VSM) (Raab et al., 2005; Seth & Gupta, 2005). VSM is defined as an

Figure 1. The proposed framework.

 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 7

important; operations improvement methodology capturing both “VAT” and

“NVAT” activities that are performed to deliver the product to customers, and
which absorbs the same assets and resources along the mainstream of the
process (Seth & Gupta, 2005). Raab et al. (2005) claimed that in the restaurant
industry, practices that contribute to generating the product or provide service
to the customer are referred to as “VA” activities, while other activities can be
categorized as “NVAT.”
TDABC requires less accounting transactions than the common method for
allocating ABCs. According to Kaplan and Anderson (2007), the TDABC
approach overcomes many costing techniques’ problems and has the advan­
tages of being more dynamic and fewer people-intensive, in addition to
providing accurate information about unused capacity (Ardiansyah et al.,
2017). All of these advantages have helped Kaplan and Anderson (2007) to
conclude that TDABC can be used in most organizations irrespective of the
complexity of operations, products, or services.
Thus, this paper is carried out to demonstrate how the fundamental prin­
ciples of TDABC can be applied to restaurant operations. Therefore, the
TDABC approach was formulated in this analysis with three goals in
mind: 1) tracking costs; 2) capturing NVAT, and 3) maximizing capacity
planning of the case restaurant. As shown in Figure 1, FOUR essential phases
were developed to achieve these objectives.

Results of the case study

Methodology

In this research paper, a case study is employed to explore whether using

TDABC for menu activities analysis, provides new insight into the true
analysis of restaurants’ operational activities and value. According to Yin
(2003), a case study design incorporates the theory and is suitable for discuss­
ing the “how” and “why” questions. It allows analyzing phenomena in differ­
ent real-life settings using multiple methods of data collection (Cronin, 2014;
Stewart, 2012). This case study was performed at an Italian restaurant in the
USA “S Sandwich Restaurant” which has nine staff members and an occu­
pancy rate of 70%. The restaurant menu includes two edible sections; 15
sandwiches and limited option of salads, besides 10 items of hot and soft
drinks.
Based on the fact that our restaurant specializes in the production of
a number of sandwiches with almost the same symmetry of ingredients
(bread, spreads, main (meat/chicken/fish), cheese, and toppings), all prices
of the menu items were based solely on food cost. While, in this study, labor
cost was added to the basic cost unit of menu items using “time” as an activity
driver. Direct observation was conducted for 3 months in the restaurant
8 A. M. ELSHAER

during the summertime. In which, the researcher served as an observer from

an outstanding point (cook line), where one of his duties was to collect and
store the inventory besides his main task; handling customers’ orders. The
objective of the observations was to identify the restaurant’s activities stream­
ing and to capture costs (time) of resources based on a functional analysis.

Restaurant’s functions and activities

The first step of analysis of TDABC is to identify different operational activ­

ities and its source. In the case restaurant, there are many activities including
purchasing, receiving, stocking, food preparation, cleaning, dining room set-
up, taking orders, serving food and beverages, table handling, cashing out
customers, and customer communication. It was therefore necessary to estab­
lish two centers of activity: The Front of the House (FOH) and the Back of the
House (BOH). The concept “Front of the House” refers to the “external
operations” which refer to things seen by the customer. The “Back of the
House” is also called “internal operations,” they do not necessarily involve the
customer in the production and delivery of the service but can influence
perceptions directly or indirectly if they are eventually linked to the satisfac­
tion of the service (Zeithamall et al., 2006). Garrison and Noreen (1997)
recommend that all operating activities should be outlined in a process value
analysis, which is a flow chart that displays all relevant operations that meet
the requirements of products. To this end, all FOH and BOH activities are
combined into a flow chart (Figure 2) displaying all restaurant operations. It
can also be used to develop criteria to be used as a reference to maintain high
and speedy service levels.
Before measuring the costs of menu items, it is necessary to define:

● The cost drivers, the central concept of the ABC approach:

The first stage in the TDABC process is to set up cost drivers by splitting the
total costs of each activity center into activity cost driver pools (Raab et al.,
2005). The establishment of cost drivers allows operations to be divided into
various categories, such as purchasing, production, operating, and
maintenance.

● Time drivers, the basic of VSM approach:

In the second stage, time is assigned to each activity driver (time is treated as
a main driver of costs) in order to accurately measure the real costs of the
products or services (Kaplan & Anderson, 2007).
Specifically, at this point, ABC system coupled with unit times of consump­
tion of resources/assets capacity by the operations and activities (Kaplan &
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 9

Figure 2. Flow chart of the restaurant activities. A1: Inspecting materials, disencumber the table,
cleaning, and organizing activities.A2: Welcome the customer, place the order, serve the order, and
manage payment.A3: Determine the quantity and its quality, managing financial issues, making
purchasing order.A4: Inspecting raw material and managing the stock, pulling away the material.A5:
Cleaning the ingredients, cutting, mixing, and preparing the ingredients.A6: Managing the kitchen,
launch production, assuring quality and hygiene, maintain equipment, watch activities.A7: Managing
and training the team, propose and create new products, filing employees’ documents, preparing
reports, preparing the budget, deciding regulations.

Anderson, 2004), in order to distinguish time-consuming activities to plan

resource capacity in a way that decreases costs and speed services to the
customers.
Therefore, for this study, the key point is to add time drivers because service
operations and activities are significantly assessed on the basis of labor time
spent on accomplishing a given activity. Measurements were done by direct
observation (twice a week, time was measured during a month in both the
FOH and the BOH areas using a timer).
10 A. M. ELSHAER

Restaurant’s resources expenses

Determining the overhead costs and assigning them is a key step in imple­
menting TDABC to restaurant operations. All figures shown in Table 2 were
obtained from the restaurant’s general ledger in addition to the observation
process that enabled the researcher to touch the reality of financing.
At this stage, the study identified the following different types of costs - see
Appendix A:

● Raw material costs

● Labor costs
● Utility costs
● Repair and maintenance costs
● Other costs

The cost of processes and work activities

In this section, we describe the study results undertaken within the framework
of this research paper. Table 3 provides 15 menu items or cost objects
identified (From P1 to P15).

TDABC calculations
This step of TDABC methodology identifies the essential components of
TDABC in its implementation stage which are named as follows (Kaplan &
Anderson, 2007):

(1) Define activities, activity costs pools, and activity measures.

(2) Define the cost of capacity supplied.
(3) Define practical capacity.
(4) Determine the capacity cost rate.
(5) Estimate time consumption.

Table 2. Restaurant Resources Costs in 2018 (In Dollars).

Labor costs $/h Repair and
Cost Ass. Service Cook Utility maintenance Other
type Manager Manager line line Steward Raw material costs costs costs costs
Direct 1 1 3 3 1 Raw materials of the 3,500 2,875 5,150
costs study sample
Total (Table 4)
activity 14 13 7 7 7
costs
Source: the Researcher based on the restaurant ledger.
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 11

Table 3. Items of Sandwiches Menu.

Sandwiches
P1: Beef salami – Halloumi Cheese P6: Tuna – Fresh Mozzarella P11: Pastrami – Provolone Cheese
P2: Roasted chicken Breast – Fresh P7: Roasted chicken Breast – Bel Pease P12: Turkey Pastrami – Provolone
Mozzarella Cheese Cheese
P3: Sardines – Bel Pease Cheese P8: Chicken Breast – Artichoke P13: Mortadella – Provolone
Cheese
P4: Artichoke – Smoked Mozzarella P9: Beef salami – Fresh Mozzarella P14: Turkey Breast – Bel Pease
Cheese
P5: Chicken Breast – Provolone P10: Pastrami – Bel Pease Cheese P15: Sujuk – Smoked Mozzarella
Cheese
Source: The researcher based on the restaurant menu.

According to Özbayrak et al. (2004), TDABC is a cost-management “pull”

model that works on two parameters (Kaplan & Anderson, 2004, 2007):

● Capacity cost rate, and

● Time estimated for each activity - see Appendix A.

Based on these two factors determined, the calculation methodology of

TDABC depends on the following formula (Kaplan & Anderson, 2007;
Namazi, 2016):

Total Cost of each Activity ¼ AR � STi (1)

Costs of Capacity Supplied

AR ¼ Capacity Cost Rate ¼ (2)
Practical Capacity of Resources Supplied

STi ¼ Estimated Unit Time for Each Activity

� Actual Quantity of Each Activity (3)

The resources used to complete the activity indicate the costs of the
capacity supplied (Reddy et al., 2012). While, the second parameter entails
measuring the time needed to produce one item of each activity (Tanis &
Ozypici, 2012) by conducting direct observation (Reddy et al., 2012) or
getting involved in the actual operations as a team member. Subsequently,
using these equations allows reflecting the different activities’ characteristics
that impact the time consumed when compare to ABC (Kaplan & Anderson,
2004, 2007). Therefore, it can be easy for managers to update the TDABC
model in order to record changes in their operational environment. The
results of applying the cost calculations to the menu activities of the case
restaurant are presented as operation bills in Tables 4 and 5, which is
a typical outcome of TDABC analytics. Labor costs were assigned to each
item in terms of production time in addition to tracing all operating sup­
plies. Table 4 represents a completed bill of activities (eight cost pools) of
producing one of the menu items; Beef salami – Halloumi Cheese, showing
12 A. M. ELSHAER

Table 4. TDABC details of Salami – Halloumi sandwich.

Activity
Time The
(estimated resource Costs Practical Capacity
in min­ used of Capacity Capacity of Cost Total
Activities utes) (quantity) Supplied Resources Rate Cost
Raw materials
Sub roll bread/Focaccia bread 4.30 6.45 8.5 11.95 0.71 19.69
Beef salami 5.00 6.42 12.35 18.87 0.65 21.50
Halloumi cheese 2.25 9.97 18.79 26.85 0.70 15.70
Sausage 3.25 4.50 14.00 16.98 0.82 11.99
Provolone cheese 1.50 6.00 7.65 12.26 0.62 5.58
Arugula 1.15 2.25 1.50 5.59 0.27 0.70
Mayonnaise sauce 2.25 2.25 2.40 9.99 0.24 1.22
76.38
Back office activities
A1: Purchasing activities
Determine the needed quantity and quality 50.0 1 13 992 0.013 3.84
Purchase of raw materials and other 20.0 14 1058 1.53
amenities.
Considering costs and implementing the
purchasing order.
6.90
A2: Production activities
Pulling materials out 90.0 1.5 7 512 0.013 1.76
Cutting raw materials 45.0 2 1.17
Mixing raw materials 20.0 0.52
Preparing sandwiches 35.0 3 1.36
Toasting the sandwich 16.0 0.62
Packaging/serving the sandwich 9.0 2 0.23
5.66
A3: Production support activities
Managing the kitchen. 60.0 1 14 1058 0.013 0.78
Lunch the production process. 45.0 3 7 512 1.75
Assuring quality and hygiene of the product, 15.0 0.5 13 992 0.97
equipment, and the whole work
environment.
Maintaining production equipment. 35.0 2 7 512 0.91
Supporting kitchen production. 5.0 1 13 992 0.65
5.06
A4: Provisioning activities
Stocking raw materials. 25.0 3 7 512 0.013 0.98
Pulling the needed raw material out. 13.0 1 7 512 0.16
Managing the stock. 5.0 0.5 13 992 0.32
1.46
A5: Managing and supervision activities
Preparing budget. 60.0 1.5 14 1058 0.013 1.17
Administration activities (handling 30.0 1 14 1058 0.39
complaints, organizing staff table, filing
documents, handling taxes, promotion
activities, deciding regulations, etc.).
Preparing report to high management. 30.0 1 13 992 0.39
Managing and training the team. 45.0 14 1058 0.58
2.53
A6: New product – menu conception activities
Proposing and creating new product. 90.0 2 14 1058 0.013 2.34
Cnducting operation tests. 90.0
Validating and marketing the new product. 30.0 3 1.17
3.50
A7: Activities of set up of the restaurant
(Continued)
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 13

Table 4. (Continued).
Activity
Time The
(estimated resource Costs Practical Capacity
in min­ used of Capacity Capacity of Cost Total
Activities utes) (quantity) Supplied Resources Rate Cost
Cleaning and organizing the space. 30.0 3 7 512 0.013 1.17
Inspecting and preparing machines and 30.0
materials.
Front office activities
A8: Restaurant activities
Welcoming the customer and placing the 0.45 1 7 512 0.013 0.05
order.
Disencumbering tables. 1.00 0.13
Managing customer payment.
Serving the order. 1.30 0.16
0.34
Total 955.95 101.48
All costs shown are for September 2018 in $ (US dollar); Item ABC cost of the sandwich Salami Provolone –
Calculation details: Activity time: data: measured by the researcher through a direct observation process;
Resource used: data; Resource used (quantity): data; Capacity Cost Rate [Costs of Capacity Supplied (data)/
Practical Capacity of Resources (data)].

the resources used, the time required for each operation, the capacity costs
supplied and the total cost of each activity.
As presented in Table 4, the cost of resources that are supplied to produce
an item consists of several cost pools which more or less occur in a single item
production. In order to get the menu’s average profit and value for the other 14
items, the same analysis is conducted.
The cost of TDABC and the time required to produce the menu items are
displayed in Table 5. Operating profits were measured by subtracting the
TDABC cost of each operation from the price of the item extracted from the
restaurant’s menu. Then, the total profit of each menu item was determined by
multiplying the operation’s profit by the consumption average. The latter
estimate was calculated during the period of this study and totaled 144 items
as the average daily sales of sandwiches.
As a result of the tabulated information, it can be concluded that the average
profit of a product is 1.57 USD and the average time of producing one item is
4.27 minutes. The results also reveal that all items showed a positive operating
profit above 1.00 USD except for three menu items: Sardines – Bel Pease
Cheese, Chicken Breast – Provolone Cheese, and Turkey Breast – Bel Pease
Cheese. In order to make it easier to enhance the decision-making process,
a chart displaying TDABC cost coupled with production time for each item is
created (see Figure 3).
TDABC can play an important role in the cost justification of menu items
and in supporting decision-making processes. Especially that such simple
comparison shown in Figure 3 provides managers with information that
helps them in deciding which stream of change/modification should be
14 A. M. ELSHAER

Table 5. TDABC menu analysis.

Consumption Operation Activity
average TDABC item Item profit Total time
Products (One day/2 shifts) cost ($) price ($) ($) profit ($) (minutes)
Beef salami – Halloumi Cheese 20 5.07 7 1.93 38.60 87.2
Roasted chicken Breast – Fresh 24 5.42 8 2.58 61.92 103.92
Mozzarella
Sardines – Bel Pease Cheese 3 5.12 6 0.88 2.64 12.93
Artichoke – Smoked 3 4.09 6 1.91 5.73 12.84
Mozzarella
Chicken Breast – Provolone 14 6.12 7 0.88 12.32 59.64
Cheese
Tuna – Fresh Mozzarella 8 6.22 8 1.78 14.24 34
Roasted chicken Breast – Bel 12 6.30 8 1.70 20.40 50.52
Pease Cheese
Chicken Breast – Artichoke 2 5.78 7 1.22 2.44 8.46
Beef salami – Fresh Mozzarella 10 5.58 7 1.42 14.20 42.2
Turkey Pastrami – Bel Pease 5 4.86 6 1.14 5.70 21
Cheese
Pastrami – Provolone Cheese 11 5.09 7 1.91 21.01 46.75
Turkey Pastrami – Provolone 6 4.68 7 2.32 13.92 25.20
Cheese
Mortadella – Provolone Cheese 7 5.69 7 1.31 9.17 29.12
Turkey Breast – Bel Pease 7 5.06 6 0.94 6.58 29.75
Cheese
Sujuk – Smoked Mozzarella 12 5.24 7 1.76 21.12 50.64
Total 144 23.68 249.99 614.17
Average 1.57 4.27
TDABC item cost, item price (Menu), operation profit and total profit are in US dollar; Calculation details:
Consumption average: Observation; TDABC item cost: Calculated; Item price: Menu; Operation profit = item price-
item TDABC cost; Total profit = operation profit × average of consumption; Activity time: Measured.

followed first with a view to optimize the benefits and simultaneously reduce
the cost of low-profit items’ activities.
All items are identified to have nearly the same time of production com­
pared to their varying costs. Calculations of 144 products released an average
time of 4.27 minutes for producing one item which may destroy the advantage
of quick service that our restaurant seek to achieve. This average figure is then
added to the cost of each item, which resulted in changing the prices of menu
items. On this basis, three main components (Chicken breast, Tuna, and Beef
salami) showed to be costly, although sandwiches that include these three
types of meats achieved collectively of about 44% of daily consumption rate.
On the other hand, three products [Artichoke – Smoked Mozzarella, Turkey
Pastrami – Provolone Cheese, and Turkey Pastrami – Bel Pease Cheese] are
identified to have the least costs with 4.09, USD 4.68, USD and 4.86 USD,
respectively. The latter group must, therefore, be prioritized and given a good
amount of promotional activities, particularly their consumption rate collec­
tively is lower than 10% per day.
In alignment, the Pareto chart is constructed to identify the critical restau­
rant’s activities from trivial ones, and to enhance making decisions about
possible changes in operations and activities (Figure 4). In this study, the
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 15

7 6.3
6.12 6.22
5.78 5.58 5.69
6 5.42
5.07 5.12 5.09 5.06 5.24
4.86 4.68
5 4.36 4.33 4.31 4.094.28 4.26 4.25 4.21 4.23 4.22 4.2 4.25 4.2 4.16 4.25 4.22
4

0
Beef salami Roasted Sardines – Artichoke – Chicken Tuna - Roasted Chicken Beef salami Turkey Pastrami – Turkey Mortadella Turkey Sujuk –
– Halloumi chicken Bel Pease Smoked Breast - Fresh chicken Breast – – Fresh Pastrami – Provolone Pastrami – – Breast – Smoked
Cheese Breast – Cheese Mozzarella Provolone Mozzarella Breast – Artichoke Mozzarella Bel Pease Cheese Provolone Provolone Bel Pease Mozzarella
Fresh Cheese Bel Pease Cheese Cheese Cheese Cheese
Mozzarella Cheese

TDABC item cost ($) Activity time (in Minutes) 2 per. Mov. Avg. (Activity time (in Minutes))

Figure 3. Cost and time of menu items.

Pareto chart makes it easy for managers to determine both costly and time-
consuming activities that need to be improved to reduce the costs of items and
enhance value (Pyzdek, 2003).
The chart is extremely simple to define, interpret, and allow the man­
agement of the restaurant to concentrate on tasks that intensively con­
sume time. According to the Pareto chart, the operating procedures that
consume 80% of the allocated time relate to two main cost pools/activities
(Managing and supervision activities [A5, A6] and production activities
[A2, A3]). They consume 50% and 41.66%, respectively, of the accumu­
lated activities time. In this regard, Elshaer and Marzouk (2019) con­
firmed that the effective accomplishing of daily operations relies mainly
on the strong management in using time and their human resource
capacity efficiently. Improved management and supervision activities
could, therefore, create significant value by devising and improving new

90 100
90
75 80
60 70
60
45 50
40
30 30
15 20
10
0 0

Restaurant’s activities Accumulated activities’ time

Figure 4. Pareto chart of restaurant activities.

16 A. M. ELSHAER

production streams and activities in order to improve the real capacity of

the restaurant.

Capacity planning
At this point, the study demonstrated that TDABC produce distinctly different
results than a traditional menu cost analysis could. The simultaneous con­
siderations of value creation allowed us to use the VSM approach. The analysis
showed that for 80% of all hours, some specific operational activities cause
unnecessary hours of work. In this context, the use of part-time employees and
more advanced demand forecasting approaches are some possible strategies
that could result in time and cost reduction. Another significant operational
opportunity to minimize operation time comes from using VSM to reduce and
remove any NVAT.
Based on the proceeding discussion, TDABC is an examination of
resources and activities across the case restaurant of value-added work.
By this view, it can be used to identify and remove those activities that
consume time and costs intensively, without adding any value for the
operation, and also help managers to find new operational techniques and
streams to get their work accomplished with added values. Hence, engi­
neering a VSM and removing NVA activities is a vital consequence of
adopting a TDABC approach. VSM allows determining where and what
needs to be eliminated (Suhadak et al., 2015). In our case study, the
results indicate certain organizational practices in costing language of
the ABC that consume unnecessary time translating into costs.
According to Pareto chart (Figure 5), activities related to the production
process consume 41.66% of accumulated operational time, such findings
indicate two main points:

● Operation cycle includes VAT, and

● The operation cycle includes NVAT.

According to Hines and Rich (1997), Toyota’s production system

(TPS) commonly identifies seven wastes of operations: (1) overproduc­
tion, (2) delays, (3) task switching, (4) inappropriate processing, (5)
unnecessary inventory, (6) unnecessary movement, and (7) defects.
Based on this categorization, two main types of wastes were identified
to impact both time and cost of operations within the case restaurant; 1)
unnecessary movement and 2) task switching. Accordingly, planning the
future state of the production system of the restaurant is constructed in
a way that overcomes these captured problems and helps the production
process to run smoothly – see Figure 5.
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 17

Figure 5. Current and future state of the production system.

TDABC-based future status of the production will not only help to

reduce activities duplication but will also help eliminate service disrup­
tions for customers too. The future state imposes that all employees are
responsible for the whole process of achieving the optimal accomplishing
of tasks in terms of appropriate processing, speedy and quality service by
avoiding overproduction, unnecessary activities, and movements in any
service undertaking.

Performance improvement
All these discussed insights are consistent with the scope of TDABC applica­
tions described in the literature, suggesting that if products consume varying
amounts of resources, the TDABC technique will reveal prominently different
product costs compared to product cost activities based solely on contribution
margins. The implementation of TDABC enables tracing the undistributed
operating expenses to individual menu items, which for many reasons could
be advantageous:

● Firstly, very little attention is paid in the case restaurant to undistributed

operating costs (overhead expenses) when product prices are set.
● Secondly, TDABC analysis examines all major production tasks and
allows the identification of activities that increase costs more than adding
value. Therefore, employees can either remove, outsource, or more effi­
ciently carry out these activities.
● Third, once TDABC is measured, pricing can be cooperatively implemen­
ted by the accounting and administration functions to optimize total
profit and create value for consumers (Daly, 2002).
18 A. M. ELSHAER

Conclusion
While the vast majority of previous studies have examined the applicability of
TDABC technique in various companies (Ardiansyah et al., 2017; Basuki &
Riediansyaf, 2014; Campanale et al., 2014; Dalci et al., 2010; Kaplan & Norton,
2008; Somapa et al., 2012), there has been little interest in how this approach
works for the restaurant industry, and the studies by Kumar and Mahto (2013)
and Terungwa (2012) recommended investigating TDABC in small-scale
restaurants. The aim of this paper was to introduce TDABC in restaurants
to analyze and map its operations. A case study within an Italian restaurant is
conducted to examine this matter with greater reality and richness.
The results of this study showed that TDABC is workable and suitable for the
restaurant industry and able to handle the various activities of restaurant
operations. Also, it became apparent that implementation of TDABC is less
complex than the implementation of other costing techniques, as it requires only
two parameters, the unit cost of the activity and the time required to perform
a transaction or activity. Therefore, TDABC not only means more accurate
costing but, it also achieves process and value analysis. Such analysis allows
managers to capture NVAT that should be eliminated and to identify VAT that
needs to be enhanced. Therefore, it can be summarized that this work has
fulfilled its realistic commitment objectives by introducing the operational suit­
ability of TDABC in the case restaurant as a technique for both analyzing and
mapping the restaurant operations. There is however a range of drawbacks to
mention. First, without further research, the particular findings of this study
cannot be generalized to the restaurant industry as a whole, or other types of
restaurants. Second, this study examined only the menu of sandwiches; it did not
consider other menus of beverage or salads. Thirdly, this research is also subject
to Hawthorne effect-the behavior of the restaurant staff may have been altered in
response to the fact that their performance is being observed and assessed. This
behavior could result in inaccurate results when calculating the time of certain
tasks. To mitigate this effect, every task was detected and timed to account for
any variances multiple times over the period of the study. Future research on this
subject should, therefore, involve deciding whether TDABC technique can be
extended to other types of restaurants, such as a buffet or casual dining. Also, it
should examine the potential application of TDABC methods to other hospital­
ity industries, such as hotels or spas. Eventually, undertaking a study that
incorporates TDABC with a price sensitivity analysis which would include
both costing and quality aspects of a hospitality project would also be helpful.

Declaration of interest
The author certifies that he has NO affiliations with or involvement in any organization or
entity with any financial interest (such as honoraria; educational grants; participation in
 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 19

speakers’ bureaus; membership, employment, consultancies, stock ownership, or other equity

interest; and expert testimony or patent-licensing arrangements), or non-financial interest
(such as personal or professional relationships, affiliations, knowledge, or beliefs) in the subject
matter or materials discussed in this manuscript.

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 JOURNAL OF QUALITY ASSURANCE IN HOSPITALITY & TOURISM 23

Appendix A

Table AI. Direct human resources.

No. Position Staff Salary (per month) Overtime and other incentives Total
1 Branch Manager 1 6000 1000 7000
Ass. Manager 1 3000 500 3500
2 Service line 3 2000 500 7500
3 Cook line 3 2500 500 9000
4 Steward, cleaning tasks 1 1500 500 2000
Total 9 29000
Source: The researcher based on the restaurant ledger.

Table AII. Restaurant Activity Total Costs in 2018 (In Dollars).

Cost type Raw material costs Utility costs Repair and maintenance costs Other costs
Direct costs 65,753 3,500 2,875 5,150
Allocated costs from: 857 1,580 1,176 1,206
A&A 2,470 345 651 223
T&E 1,408 107 262 517
M
Total activity costs 70,488 7,401 8,964 7,934
Source: The researcher based on the restaurant ledger.

Table AIII. Template of time measurement of restaurant activities.

Date: Day:
Time 1 2 3 4 5 6 7 Sum Mean
(In minutes)
Back office activities
A1: Purchasing activities
Determine the needed quantity and quality
Purchase of raw materials and other amenities.
Considering costs and implementing the purchasing order
A2: Production activities
Pulling materials out
Cutting raw materials
Mixing raw materials
Preparing the sandwich
Heating the sandwich
Packaging/serving the sandwich
A3: Production support activities
Managing the kitchen
Lunching production
Assuring quality and hygiene of the product, equipment, and the local
Maintaining production equipment
Supporting kitchen production
A4: Provisioning activities
Stocking raw materials.
Pulling the needed raw material out.
Managing the stock.
A5: Managing and supervision activities
Preparing the budget.
Administration activities (handling complaints, organizing work table, filing
documents, handling taxes, promotion activities, deciding regulations, etc.)
Preparing a report to high management.
Managing and training the team.
A6: New product – menu conception activities
Proposing and creating a new product
Cnducting operation tests
(Continued)
 24 A. M. ELSHAER

Table AIII. (Continued).

Date: Day:
Validating new product proposed
A7: Activities of set up of the restaurant
Cleaning and organizing the space
Inspecting and preparing machines and materials.
Front office activities
A8: Restaurant activities
Welcoming the customer and placing the order.
Disencumbering the table.
Managing customer payment.
Serving the order
Total cost
Cost of all activities
Actual time
Remarks:
Source: The researcher’s preparation.

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