In past literature, the Theory of Constraints (TOC) has been seen as more or less contradicting the concept of ABC-costing and its assumptions.
The main contradictions between ABC and TOC mentioned in those studies are:
1. Variable costs: While the 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.
2. Bottlenecks Resources:
- The TOC argues that constraining resources or the outputs with the lowest capacity should be improved. In other words, the bottleneck resources that cause the highest costs in a company should be improved so as to maximize efficiency.
- ABC-costing, however, implicitly assumes no bottleneck resources to be present in an organization, but rather certain activities are seen as barriers. In ABC-costing, total resources purchased should be equivalent to co (...) Read more? Sign up for free