The Integration between Resource Consumption Accounting Approach and Theory of Constraints to Rationalize Capacity Utilization Decisions "An Applied Study"

Abstract

The traditional cost accounting systems were developed decades ago to provide cost measures that can help in decision making. Nevertheless, those systems were only suitable in a time when organizations depended on labor more than machines, and most of the labor costs were variable costs. Thus the major portion of the production costs were variable. This indicates that the traditional cost accounting systems may only be suitable for organizations that produce/provide a narrow range of products/services. The activity-based costing system (ABC) developed by Cooper and Kaplan in (1988) was viewed to have more benefits over the traditional cost accounting systems. These benefits are represented in providing more accurate product cost information and more accurate product and customer profitability measurements. Inspite of the benefits of ABC over the traditional costing system, ABC was criticized because of some weaknesses. In order to solve the problems of the ABC system -which only pays attention to monetary side and ignores the quantity-based resource information- the focus should be shifted to resources. This can be achieved by using the resource consumption accounting approach (RCA) which blends the