Open AccessProduct-Mix Decisions Under Activity-Based Costing With Resource Constraints And Non-proportional Activity Costs
Author(s) -
Massood YahyaZadeh
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v14i4.5650
Subject(s) - activity based costing , product mix , product (mathematics) , resource (disambiguation) , theory of constraints , product cost management , life cycle costing , operations research , cost driver , computer science , target costing , business , risk analysis (engineering) , operations management , environmental economics , economics , new product development , marketing , industrial engineering , product lifecycle , engineering , mathematics , computer network , geometry
Companies adopting activity-based costing as a management and decision-making tools should be aware of its potential drawbacks. Activity-based costing relies heavily on the assumption of proportional activity cost structures. Further, it ignores resource and technological constraints. I argue in this article that both problems can be addressed through the integration of the activity-based costing with operational decisions based on Goldratts Theory of Constraints, (TOC). The proposed approach offers the added benefit of mitigating the short-run bias of the TOC approach in product-mix decisions.