THEORY OF CONSTRAINTS VERSUS OTHER COSTING METHODS: A MATTER OF SHORT OR LONG TERM

Abstract

The Theory of Constraints (TOC) and Activity-based Costing (ABC), although opposite in their basic foundations, can concur in integration studies which attempt to show that these methods applied together perform better when compared to their individual use. As for that integration, a group of authors (CAMPBELL,1992; MAcARTHUR, 1993; HOLMEN, 1995; FRITZSCH, 1997) defends an idea of the difference between these two methodologies being a matter of the time horizon: TOC used in the short term and ABC in the long term. The present article’s objective is to show, through a numeric illustration, considerations of that group of studies. Therefore, the TOC decision making is compared with other costing methods: Absorption Costing, Activity-based Costing and Variable Costing. The data analysis permits to confirm that TOC has produced a better result than the other techniques, in the short term. In the long term, however, when idle capacities can be exploited fully in the absence of internal constraints, ABC proved to be the technique that leads to the best result. Keywords: Integration. Theory of Constraints. Activity-based Costing.