Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 33

What is the main difference between activity-based costing and the theory of constraints? When is it appropriate to use each one?

Step 1 of 3

“An activity based costing is applied in two stages of activities.

Instead of a predetermined rate the activity based costing computes the cost driver for each of the activity center.”

“The theory of constraints is the process by which the company can achieve the goal for the business provided the constraint factor is the most important limiting factor.

The company thus tries to improve this limiting factor or constraint in the process so that improvement in the process is achieved in the future.”