Integrating activity-based costing and the theory of constraints

Article Abstract:

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.

---

Cost management for internal markets (continued)

Article Abstract:

Transfer pricing is a technique that companies use to manage their internal costs. To establish transfer prices, organizations may resort to traditional cost systems. For instance, the transfer pricing system may focus on marginal costs, an approach that emulates short-term variable costs. Another option is to use full costs, which emulates long-term variable costs. However, these traditional transfer pricing systems may generate distorted behavior or encourage controversy and wasteful discussions. A recommendable alternative is taking a strategic cost management approach in transfer pricing, which allows recognition of the fundamental causal factors influencing costs. Activity-based costing can effectively produce precise and transparent transfer prices.

Transfer pricing

---

Micro-profit centers

Article Abstract:

Effective cost management within an organization involves the transfer of the profit pressure to different operational units through micro-profit centers. Micro-profit centers harness the entrepreneurial spirit of employees by empowering them to see the profit implications of any improvements that they make. This intraorganizational cost management approach motivates the workforce to seek out ways to boost profits and make them feel maximum ownership of a center's profits. Micro-profit centers can be applied in settings where revenues are artificial or are based on prevailing market prices. The key is to make micro-profit centers as small as possible and ensure that every center's output is measurable to allow revenue to be attached to it.

Management, Profit centers

Similar abstracts:

• Abstracts: Integrating activity-based costing and economic value added. The scope of strategic cost management
• Abstracts: An empirical analysis of a skill-based pay program and plant performance outcomes. The impact of human resource management on organizational performance: progress and prospects
• Abstracts: Staff productivity chases US levels. Auditors make a feast of the overlooked crumbs
• Abstracts: Going out, without leaving home. Personal polls help the nosy sate curiosity. Make a right, you can't miss it
• Abstracts: Lively tour of the Himalayas. 3 countries frozen in time. Getting a feel for Jerusalem's complicated past and present

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.