In an era of fierce international competition, manufacturing
firms must have a thorough understanding of their cost structure
and how that structure relates to pricing and product mix
decisions. Two competing conceptual approaches to designing product
cost systems that support decision making are Activity-based
Costing and the Theory of Constraints. Rather than argue in favor
of one to the exclusion of the other, Robert J. Campbell presents a
new approach to cost system design that combines the strengths of
each school of thought, thereby overcoming the significant
limitations of each. The need to price the product mix in order to
exploit constrained resources is advocated by the Theory of
Constraints, while the need to examine resource consumption from
activities, both value adding and non-value adding, to support the
principles of JIT is advocated by Activity-based Costing.
After examining the nature of a firM's cost structure as it
relates to the activities performed by various functional areas,
Campbell discusses the development of activity-based cost systems
through an extensive example. Activity-based costing can lead to
building excessively complex accounting systems that lack focus and
provide confusion about short-run versus long-run changes in the
cost structure. After a chapter examining short-run cost behavior
and cost relationships, an in-depth discussion of the Theory of
Constraints and how it is contrasted to, and complemented by,
activity-based costing follows. In these middle chapters the
strengths of each methodology are identified and combined into a
unified approach to product cost systems. Later chapters provide
discussion on pricing strategies, customer profitability analysis,
and providing cost measures that recognize either loss of learning
or volume-related efficiencies in machine-paced organizations. This
book is an important resource for executives or consultants seeking
to implement new cost management systems that lead to improved
decision making, as well as for educators seeking to reconcile and
understand Activity-based Costing and the Theory of
Constraints.
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