When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the approach each method takes toward profitability analysis is:
A) TOC takes a short-term approach and ABC takes a long-term approach.
B) TOC takes a long-term approach and ABC takes a short-term approach.
C) Both TOC and ABC take a short-term approach.
D) Both TOC and ABC take a long-term approach.

Question

Quizplus · Accepted Answer

TOC (Theory of Constraints) focuses on identifying and managing the bottleneck in a process to improve throughput, which is often considered a more short-term approach to increasing profitability. On the other hand, ABC (Activity-based Costing) involves a detailed analysis of costs associated with activities, aiming to provide insights for long-term strategic decisions, thus taking a long-term approach to profitability analysis.

When Comparing Activity-Based Costing (ABC) and the Theory of Constraints