ABC vs. TOC: it's a matter of time

Article Abstract:

Claims that activity-based costing (ABC) is superior to the theory of constraints (TOC) are unfounded since the two management accounting tools cannot be compared because they are based on different sets of assumptions. At first glance, the two concepts appear to be at odds with one another. For instance, proponents of TOC disagree with the claims of ABC advocates that problems in decision making are caused of distortions in product costs. Such disagreements are understandable considering that the assumptions of the two cost paradigms have different time horizons. ABC has a long-run time horizon, therefore it assumes that production capacity is permanent. On the other hand, TOC has a short-time horizon, meaning that it assumes that costs will increasingly become variable. ABC and TOC can be used side by side. The key is for management accountants is to determine which one works well for what set of circumstances.

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Distribution channel profitability

Article Abstract:

Companies can use activity-based costing (ABC) concepts to be able to evaluate the profitability of their distribution channels. The common approach to assessing channel profitability divides costs into product costs, and sales, general and administrative costs. This methodology works well if the company is aligned by channel or customer group, but not if it is aligned by region, product line or facility location. In comparison, the assessment approach that is based on ABC concepts allocates overhead costs to product lines more sensibly, therefore improving the accuracy of product costing. One major disadvantage of this method is its erroneous assumption that all costs are product-driven and must be allocated to the products. In most cases, costs are driven by factors other than products. A third method for assessing channel profitability, the strategic cost management approach, is discussed.

Analysis, Measurement, Distribution channels, Costs, Industrial, Industrial costs

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Building an ABC data warehouse

Article Abstract:

The data warehouse is an instrument for the automatic collection and organization of analytical information that is easily available to decision makers. This tool gathers data from different sources, providing reliable, consistent information for dealing with real-world problems. It is cost effective to implement and maintain, with an architecture that is flexible and quantifiable, and a design that includes operational data, historical data and external data. The data warehouse functions by collecting operational data and other data sources based on specific instructions into analytical information that is filed for easy distribution to decision makers. It can be combined with the activity-based costing (ABC) tool to generate an ABC data warehouse that produces activity-based management information for strategic decision making.

Database administration, Information storage and retrieval

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