Activity-based costing (abc) and the theory of constraints (toc) are viewed as methods that are:
Citation metadataDocument controlsMain contentAbstract : Show The theory of constraints (TOC) should not be viewed as competing against activity-based costing (ABC) and instead be treated as its complementary cost management technique. While TOC is concerned with optimizing throughput and therefore short-term profits, ABC is focused on finding the right product mix that will lead to the greatest long-term profits. Thus, TOC is a tactical cost management technique and ABC is a strategic-oriented method. TOC helps in determining the optimal short-term product mix that can be manufactured by dividing resources into two categories, the first incorporating all resources acquired on an as-needed basis and the other consisting of all resources purchased on an in-case basis. From this categorization, one can optimize throughput, which is computed by subtracting the cost of the as-needed resources from revenues. Get Full Access Gale offers a variety of resources for education, lifelong learning, and academic research. Log in through your library to get access to full content and features! Access through your library Copyright: COPYRIGHT 1999 Institute of Management Accountants Source CitationGale Document Number: GALE|A54134349 AbstractThe objective of this thesis is to demonstrate the use of the Activity-Based Costing (ABC) approach together with the Theory of Constraints (TOC) philosophy in determining the optimal product-mix and restrictive bottlenecks of a company. The contribution of this thesis is a new product-mix decision model that uses activity-based cost information. This new model is proposed to be used with the TOC philosophy in order to improve the financial performance of a company. Four case studies, all of which are based on hypothetical data, are prepared in this research to show the applicability of the proposed model in different manufacturing environments. Specifically, the first case study shows that the conventional product-mix decision model and the model developed in this thesis can give significantly different results regarding the best product-mix and associated bottlenecks of a company. The second case study demonstrates the use of the proposed product-mix decision model in a complex manufacturing environment. Specifically, this case study shows how companies should consider alternatives such as activity flexibility and outsourcing to improve their profitability figures. The third case study is an extension of the second case study, and it is prepared to illustrate that the proposed model can be extended to include more than one time period. The final case study demonstrates the applicability of the proposed model in a lean manufacturing environment. Using the proposed model developed in this research will give managers more accurate information regarding the optimum product-mix and critical bottlenecks of their companies. By applying the TOC philosophy based on this information, managers will be able to take the right actions that will improve the profitability of their companies. Specifically, they will be able to observe the effects of several alternatives, such as activity flexibility and outsourcing, on the throughput of the whole system. In addition, the proposed model should help managers to prevent making decisions that sub-optimize the system. This may occur, for example, when using only the most efficient methods to produce each product even though the capacities of these methods are limited and some other less efficient methods are currently available in the company. By extending the model to include more than one time period, managers will be able to estimate the potential bottlenecks and the amount of idle capacities of each non-bottleneck activity performed in the company ahead of time. This information is powerful and can give companies a substantial advantage over their competitors because the users of the new model will have enough time to improve the performance of their potential bottlenecks and to search for more profitable usage of excess capacities before the actual production takes place. Jun 30, 2022 | Uncategorized “WE’VE HAD A GOOD SUCCESS RATE ON THIS ASSIGNMENT. PLACE THIS ORDER OR A SIMILAR ORDER WITH US AND GET AN AMAZING DISCOUNT” Post your order to get it done from scratch by our writers today Write My Paper What is activityActivity Based Costing Costing vs Traditional Costing
Traditional costing is more simplistic and less accurate than ABC, and typically assigns overhead costs to products based on an arbitrary average rate. ABC is more complex and more accurate than traditional costing.
When comparing activityWhen comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the approach each method takes toward profitability analysis is: TOC takes a short-term approach and ABC takes a long-term approach. 3,1,5,4,2.
What is the activityActivity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services. The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.
What is the main difference between activity1. Variable costs: While the Theory of Constraints (TOC) assumes that there exist few variable costs in an organization, ABC-costing assumes the largest part of a companies' resources are variable ones. It is for this reasons that the TOC is seen by some as a short-term technique, and ABC-costing as a long-term one.
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