Arabian Journal of Business and Management Review (Nigerian Chapter) Vol. 1, No.

5, 2013

THE THEORY OF CONSTRAINTS: A COMPARATIVE ASSESSMENT

Dr. Hamid Reza Alipour 1

Gholam Reza Khorshidi2
Ali Naghdi3 – Hamed Alizadeh4
Hamidh Honarmand5 – Zahra Shabani6

ABSTRACT

This paper examines in detail the relative utility of the Theory of Constraints compared
to traditional management accounting approaches to resource utilisation in aiding
decisionmaking. It also considers the propagation and evolution of the Theory of
Constraints and critically examines the response it has generated in the accounting and
management literature. The continuing survival of cost accounting in the face of
frequent assaults similar to Goldratt’s may in part be due to the ability of the discipline
to adapt its practices to integrate the mandated improvements into practice and
educational curricula. One example is the Theory of Constraints itself (e.g. Horngren et
al (1999) and Morse & Zimmerman (1997)). The paper reflects on the process by
which new ideas are assimilated into the conventional management wisdom based on
this example.

KEYWORDS
Capacity Management,Capacity Plasticity, Constraints, Management Accounting,Financial Brake

___________________________________ __________________________________________________ ____

1
Assistant Professor of Islamic Azad University, Rasht
2-6
Master Students of Business Management. Islamic Azad University , Rasht , Branch, Iran .

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Arabian Journal of Business and Management Review (Nigerian Chapter) Vol. 1, No. 5, 2013

INTRODUCTION
The worldwide economic reorganisation of the last decade has regularly been accompanied by
appeals to concepts of lean manufacturing and flexible systems. These generally imply a scaling of
productive and operating capacity to match demand and current throughput levels. The recent Irish
economic boom also highlighted the importance of consideration of capacity management issues.
These have arisen both because of constant appeals to greater efficiency, and because of
imbalances between the supply and demand of many input resources. The problem of capacity
management arises both in a macroeconomic and local, or firm level context. A question arises as
to contribution of management accounting in managing such problems. Although issues related to
capacity have long been considered in accounting there is a relative lack of advanced quantitative
techniques in daily use as recommended in the literature.

THE THEORY OF CONSTRAINTS

In "The Goal" Eli Goldratt reinvigorated traditional optimisation insights by presenting them in a
repackaged form (Goldratt and Cox (1993)). This management best seller took the form of a
thriller following the struggle of plant manager with 90 days to save his loss making operation from
shutdown. In it Goldratt and Cox attack cost accounting as the "enemy number one of productivity"
and instead called for a holistic process of ongoing improvement integrating techniques such as
MRP, Just in Time and Statistical Process Control. The continuing survival of cost accounting in
the face of frequent assaults of this type may in part be due to the ability of the discipline to adapt
its practices to integrate the mandated improvements into practice and educational curricula. One
example is the Theory of Constraints itself (e.g. Horngren, Bhimani et al (1999) and Morse &
Zimmerman (1997)).

The theory of constraints (TOC) describes methods to maximise operating profit by identifying
bottleneck operations, recognising that the bottleneck resource determines the throughput
contribution of the plant as a whole. The bottleneck may be found by identifying operations with
large backlogs of stock waiting to be worked on. A summary of the development of the theory
is included in Jones & Dugdale (1998).

The manager must then ensure the bottleneck resource is always kept busy and other resources are
subordinated to the bottleneck in scheduling, and in prioritising investment.
The Theory of Constraints is built on three central measurements:

1. Throughput contribution = sales revenue - direct materials cost.

2. Investments (stock) = Inventory (i.e. Raw materials, WiP, Finished Goods (materials
content only)) + R & D costs + Buildings and Equipment.
3. Operating costs = includes operating costs other than direct materials, includes labour costs
and overheads including depreciation. These are all implicitly assumed to be fixed. This
assumption leads many commentators to the conclusion that TOC measures have a short run time
horizon.

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TOC aims to maximise throughput contribution while decreasing investments and operating costs.
This is done by following a series of focusing steps to manage bottleneck resources.

Five Focusing Steps

STEP 1: Recognise that the throughput contribution of the entire plant is limited by the bottleneck
resource.
STEP 2: Identify the bottleneck resource, generally by seeing where there is a build- up of stock
waiting to be worked on.
STEP 3: Keep the bottleneck operation busy all the time, and subordinate all other operations to it.
The needs of the bottleneck resource drive the production schedule of other resources. It sets the
pace for other machines or operations. Producing more elsewhere only leads to excess stock
without increasing throughput contribution. TOC demands the elimination of most Work in Process
inventory. TOC does however advocate the maintenance of a buffer stock before the bottleneck
machine to ensure that it is never unnecessarily idle.
STEP 4: Elevate the systems bottlenecks by increasing system capacity. This is done if the increase
in throughput contribution exceeds the incremental cost of improvement.
STEP 5: If in the previous steps a constraint has been broken, return to step 1.

DRUM, BUFFER, ROPE

Goldratt distills the lesson of TOC into the triad of Drum, Buffer and Rope. The resulting
production systems allow the rhythm of production to follow the beat of the bottleneck machines
(Drum), which have a cushion of safety stock before them (Buffer) as they alternately pull or choke
the release of materials to follow customer orders (Rope).

THE THEORY OF CONSTRAINTS AND ACCOUNTING

Goldratt & Cox's (1993) reasons for identifying cost accounting as the "enemy number one of
productivity" are illustrated in the story of "The Goal". The hero, Alex, finds that as production was
cut on non bottleneck machines, to follow the beat of the "Drum", this was reported as falling
capacity utilisation rates to his Divisional head office. Newer accounting measures such as Activity
Based Costing (ABC) may reinforce the weaknesses of traditional accounting practices based on
absorption costing, by providing an incentive for higher output at each activity and fewer setups (and
hence longer production runs), leading to excessive output at non-bottleneck resources. In general the
TOC emphasises the provision of information for decisionmaking, rather than for management
control or product costing.

Proponents of TOC also point out that traditional accounting measures penalise the improved plant
efficiency from TOC resulting from the release to the Profit and Loss account of the previous
surplus Work in Process output from non-bottleneck machines (previously carried forward as an
asset on the Balance Sheet).

It should be noted however that this effect is confined to the amount of allocated overhead
inventorised in WiP, and furthermore it is a "one off" transitory effect on the first implementation
of TOC, which only occurs while the quantity of WiP is falling.

What is interesting is the extent to which the criticisms of accounting voiced in the Theory of
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Constraints are accepted, at least in part in accounting commentaries or analyses of the TOC. For
example Jones & Dugdale (1998) concentrate on the influence of TOC and the question of whether
it represents a paradigm shift. They therefore do not analyse critically the criticisms of management
accounting made by Goldratt, or examine the TOC model itself for potential flaws. However such
flaws appear to be implicitly accepted by Jones and Dugdale (and indeed by Goldratt) in the narrative
of how the TOC has evolved into a new managerial "philosophy" in later publications
after "The Goal" such as "The Haystack Syndrome" (Goldratt 1990).
This later evolution redefined the objective of the firm from the maximisation of throughput
contribution to a trio of much broader goals i.e. satisfying the needs of (1) the owners, (2)
employees or (3) the marketplace. One of these three would be defined as the firm's objective
subject to the other two acting as constraints. Significantly this shift to less specifically quantified
objectives de-emphasises the allegedly revolutionary calculative components of the TOC. The
rationale was to allow the TOC to evolve into a new "technology of thinking" or "Thinking
Process", but which is less amenable to precise critical analysis. Significantly Noreen, Smith &
Mackey (1995) reported that for most firms which claim to have adopted the TOC, or be influenced
by it, it is the earlier and more quantifiable version of the theory which they follow and so it is still
relevant to consider the metrics from an accounting viewpoint. In fact Noreen et al report "we were
disappointed to see that it [the application of the Thinking Process] was used infrequently....at most
sites it got almost no use" (p.138). It is also the "Throughput" formulation of TOC which has
migrated into management accounting textbooks.

Jones and Dugdale accept the evolution of the TOC as congruent with the earlier model e.g. the
hero of The Goal wanted to improve plant profitability in order to save jobs there are
inconsistencies. However worker layoffs are implied in the original model where output must be
restricted at non-bottleneck points in the production process in order to cut costs. In the later model
such contradictions are reconciled by working to remove the constraint of limited demand by
finding new customers or selling more to existing customers. This however "deals inadequately
with conflicts of interest and marginalises the issue of management control" (p.88).

MANAGEMENT ACCOUNTING AND THROUGHPUT ACCOUNTING

Despite the rhetoric the ideas of TOC are congruent with the theory and practice of management
accounting prior to the publication of The Goal. The goal of maximising Throughput Contribution
while decreasing investment and operating costs can be seen as an approximation of the long
standing accounting rule in short run decision-making of maximising contribution per unit of the
limited resource which has featured in textbooks well before the Publication of The Goal. The
Goldratt approach is often referred to as Throughput Accounting.

(However there is some ambiguity of language in that the term Throughput Accounting. In the US
and continental Europe “Throughput Accounting” is the term used to refer to Goldratt's
recommendations for accounting techniques. In the UK members of the Goldratt Institute avoid

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using the term "Throughput Accounting" and uses the term "TOC in Accounting" instead. The
reason is a dispute with Waldron and Galloway over the origin of the term.)

Goldratt's advocacy of marginal costing systems reflects the long standing criticism of absorption
costing's weaknesses already prevalent in the accounting literature. The criticisms are therefore
correct but unoriginal. They also fail adequately to recognise that accounting may use different
costs for different purposes. The fact that organisations have complex absorption costing systems
for financial reporting and inventory reporting systems does not preclude them from using marginal
cost or variable costing information in at least some decisionmaking.

Clarke (1992) and Pierce & O'Dea (1998) both found almost identical usage rates for Cost-Volume-
Profit (CVP) analysis of 85% or 82%. Although the Pierce and O'Dea study did find that the
frequency of usage was low in many cases, the fact of any usage in a firm presupposed a split of
costs into fixed and variable components being available.

The literature on TOC also goes beyond the accounting criticisms and attempts to demonstrate its
superiority to the accounting model of marginal costing. In particular TOC recommends basing
product mix decisions at the bottleneck resource on throughput contribution per unit of the limited
resource, rather than accounting contribution margin per unit of the limited resource. For instance
Atwater & Gagne (1997) purport to show how profit can be increased using the TOC approach by
using the data in Appendix A, Exhibit 6. Their analysis appears that scarce machine time on
machine 2 (the bottleneck resource) is best utilised when product P is prioritised using the TOC
rule (Exhibits 4 and 5). In contrast the accounting rule would prioritise product Q (Exhibits 7 and
8). In Exhibit 9 the weekly profits of each are compared with TOC showing an apparently superior
profit of $1,692 against only $1,630 for the product mix suggested by the accounting method.

What is key to understanding the difference is the final deduction of $3,000 for operating expenses
in each case. The analysis is based on the assumption that no other variable costs except direct
materials exist (despite the column 3 heading in exhibit 7). While this may be true in some cases
TOC assumes that variable costs will never include any element of direct labour or variable
overhead. Further the narrative of the article mainly argues reasons why this should be so, rather
than that it is so. The arguments used include indivisibility of the standard work-week, employee
morale support from avoiding lay-offs and the value of retaining workers even when not productive
through training etc. This analysis ignores real world phenomena such as part-time working,
contract working, overtime working and redeployment of idle staff from quiet to busy areas, all of
which can be used to make labour costs variable at least at the margin, even without layoffs.

In fact if the Atwater & Gagne example were recast with direct labour also seen as truly variable
then the results would be as follows:

Total Q P Product
TOC METHOD –Production
Plan
3.50 5.50 Dir. Labour cost (per unit)
36 100 Units produced
$676 $126 $550 Total direct labour cost

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ACCOUNTING METHOD
Production Plan
3.50 5.50 Dir. Labour cost (per unit)
50 76 Units produced
$593 $175 $418 Total direct labour cost

Incremental direct labour cost

$ 83 from TOC production plan

In the Atwater and Gagne paper (see Appendix A, Exhibit 9) TOC offers an increased weekly
profit of $62 ($1,692 - $1,630). This is however based on the assumption that direct labour costs
are unaffected by the production plan chosen and the advantage is reversed by the $83 extra in
direct labour cost if labour is truly variable. The gap will grow wider if any of the overheads are
truly variable and Appendix B shows how the difference in weekly profit could be as high as $120.

Balderstone & Keef (1999) suggest that the definition of throughput as sales minus only material
costs is a result of a misreading of Goldratt's work, but even if this is so it has become the standard
formulation of throughput contribution in both journals and textbooks as Balderstone & Keef
themselves detail. In almost all cases direct materials costs are explicitly deducted while direct
labour is not, while direct labour is usually explicitly or implicitly included in operating costs. In
fact as they point out the error even extends to the Noreen et al (1995) independent report on TOC
and its implications for management accounting (sponsored by The Institute of Management
Accountants -USA), containing a foreword by Eli Goldratt and published by his publisher.

It is important to note that the mistaken belief that TOC provides a superior production planning
tool to the marginal contribution rule in profit terms is not confined to the Atwater & Gagne paper.
It appears repeatedly in other papers, particularly in the field of production management e.g.
Blackstone (2001), Umble & Umble (1998). Furthermore where the issue has been discussed in the
accounting literature the discussion has tended to centre on pointing out the lack of novelty in the
TOC approach, and that fact that it is a mere variation on the marginal contribution based accounting
approach,( e.g. Dugdale & Jones (1998, p210) ) rather than pointing out that it is actually inferior
and potentially misleading.

THE ROLE OF OPTIMISATION

Some reviews of TOC assert that it provides additional insights beyond those available from linear
programming (LP) e.g. "However, the level of analysis provided by LP via the shadow prices is not
as detailed and does not provide the same level of analysis as provided by TOC through the $
return/constraint unit analysis" Luebbe & Finch (1992, p1477). This statement is misleading at best
since in fact linear programming is based on the same principle of maximising contribution per unit
of the limited resource. Each "pivoting" iteratio n of the simplex method which linear programming
uses to solve optimisation problems is built on this principle. Unlike the TOC rule however linear
programming runs through several iterations because it recognises the existence of several candidates
for the role of binding constraint. TOC assumes that the choice of binding constraint
will be intuitively obvious though build-up of work in progress inventory at particular points.

This intuitive or visible choice of bottleneck being readily available is not supported by the
empirical evidence. Brausch & Taylor (1997) conducted a field study of 12 firms widely spread in
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size and industry sector to examine how firms managed, and accounted for scarce capacity. (The
study in fact mentions neither TOC nor linear programming and so could be taken as 'value neutral').
It found that bottlenecks were more of a problem precisely in those nine firms of the twelve which
made products with varying features using less continuous processes. While in some cases
bottlenecks were entrenched at particular points, in other cases 'they are in flux due to changes in
configuring the processes and in product mix, One obviously frustrated operations manager
commented that in his company "bottlenecks are all over the place"'. Tollington (1998) also
distinguishes between long term constraints and "wandering bottlenecks" arising from unforeseen
events. The proper identification of bottlenecks is likely to be a complex problem in practice.
Salafatinos (1995) demonstrates the potential advantages of using techniques such as Activity
Mapping and Activity Dependency Grids to identify the true source of bottlenecks since,
contrary to much TOC literature, a buildup of WiP in front of one machine may have complex roots
elsewhere. He further shows how such mapping may double as support for developing an Activity
Based Costing system.
In addition the shadow price is in a far more sophisticated measure than the TOC rule since it
measures the marginal contribution from a scarce resource whereas the TOC measure only captures
the average contribution (assuming that throughput contribution can be equated with classical
contribution in line with the previous discussion above). For simple problems the marginal and
average contribution will be the same, whereas for more complex problems they may well diverge.

Proponents of TOC claim that it does provide an extra insight in that built into the fifth step of TOC
is the requirement to return to the start of the process once a constraint is broken e.g. as a result of
making a process more efficient in its use of a scarce resource. As a result TOC ensures a cycle of
continuous improvement where otherwise inertia would predominate. "We would continue to
schedule production as if the system constraint had not changed and the improvement process
would stop" Luebbe & Finch (1992). While this is self evidently true it ignores the fact that all
linear programming models have a similar requirement to rerun the analysis once any value in a
constraint changes.

THE CURRENT POSITION OF BOTTLENECK MANAGEMENT

While linear programming has clear conceptual advantages over TOC it has clearly had limited
success in the marketplace for ideas. Clarke (1992) reports a usage rate of only 5% among Irish
companies. There is also no evidence of increase in usage despite the increasing access to computer
hardware and software and the spread of cost databases which could presumably lower usage cost. In
fact some leading management accounting textbooks have dropped linear programming
altoge ther from more recent editions while including TOC. Kaplan & Atkinson's second edition of
"Advanced Management Accounting" (1989) devoted an entire chapter (cpt 3) to Linear
Programming Models for Planning. The following edition (1998) contains no reference to linear
programming, but does outline the TOC. "Cost Accounting: A Managerial Emphasis" by Horngren
(1982, fifth ed. cpt. 23) and latterly by Horngren, Foster and Datar (2000 tenth ed.) follow a similar
path.

It must be recognised that LP does itself have problems in implementation. These include its
assumptions of:

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-linearity in the objective function, and constraints.

-constant selling prices and variable costs, giving clear quantifiable coefficients for the objective
function.
-identifiable and quantifiable discrete constraints. Brausch & Taylor (1997) found that none of their
12 research sites and only 3 of their 51 survey companies were determining available capacity,
degree of usage and non-usage, or the cost of unused capacity in support areas and non-factory
activities.

This paper can only begin to question the reasons for this shift from LP to TOC. It does seem to be
part of a search for greater relevance and for academic text authors to follow those ideas attracting
most attention in the popular business media and consulting markets, combined perhaps with
students difficulty with more quantitative material. The origins of LP outside of industry in the
military operations field (Pickering 1995) did not place it in the language or customs of business
and as Pickering details there is a dialectic of resistance and accommodation between the purely
technical and material and the human and social. It cannot be assumed that technical superiority
assures automatic adoption.

TOC fits into a framework of crisis in accounting. Increasing competitive pressures in business
arising from globalisation, deregulation and accelerating technological shifts are mirrored by
anxieties in the literature over the future of management accounting. There is a marked search for
new meanings, techniques and metaphors. “the decline of American manufacturing industry at root
is held to be an acute failure of managerial expertise, and calculative expertise in particular” Miller
& O’Leary (1993, p188). Perhaps TOC was an intuitively appealing tool in the right place at the
right time.

POSITIVE INSIGHTS FROM TOC AND TRADITIONAL OPTIMISATION

The contribution of TOC may be to revive interest in an optimisation approach to capacity
management, which although theoretically correct was not widely applied. It can be argued that the
TOC approach should not be described as holistic (as it is in Tollington 1998, Noreen et al 1995) as
for instance it does not recognise the possibility of adjusting pricing of marginal output to reflect
dual prices of scarce capacity.
However the insight that management should constantly search out bottlenecks from obvious clues
such as build up on WiP inventory, or customer queuing in the case of services. If this is followed
by focused searching for relief of the bottleneck, as mandated by TOC then it can contribute to
profitability. Brausch & Taylor's study outlined a variety of firm responses e.g. running overtime,
extra days and extra shifts as well as outsourcing and employing temporary or seasonal employees
in the bottleneck areas. Also the multi- skilling of employees may allow staff to shift from one
area to another as short term conditions dictate. This should be supported by payment policies
which recognise the acquisition of extra skills by employees and flexible working patterns. To be
most effective in dealing with short term "roving" it needs to be built into long term strategy. A
good example is the case of a multi- national high volume computer assembly operation, examined
by this researcher, which rotates its production line staff across tasks every four weeks. It calculates
that the productivity loss from unfamiliarity in the early stages of each person's learning a new task
is repaid in the flexibility offered by multi-skilling (as well as improving output quality,
absenteeism and high staff turnover through the reduced boredom of prolonged task repetition.)

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More long term constraints may be addressed by investment in permanent additions to capacity.
Again the TOC highlights the necessity for these additions to be tailored to relieving specific
constraints rather than replicating entire production facilities, e.g. a new machine rather than a new
factory may be sufficient.

Other approaches not often mentioned in the TOC literature may focus on management of the
demand flowing into the bottleneck. Brausch & Taylor detail a tobacco company which addressed a
bottleneck by reducing product proliferation, cutting its number of blends by two thirds.

Focusing exclusively on bottlenecks takes a narrow approach to managing capacity and capacity
costs. Non-bottleneck areas also deserve attention. Balanced production may be achieved by short
time working or layoff of contract staff in the short run, or by a process of disinvestment from
surplus capacit y, however Brausch & Taylor point out that none of the companies in their study
accounted for the cost of unused capacity either at factory or non-factory locations. However in
occasional cases they found that firms used marketing to fill the gap through obtaining special
business from outside customers using special pricing. This echoes a common problem context of
the Relevant or Marginal Pricing of a scarce order in accounting texts. An addition however is that
the texts do not generally advocate that firms seek out such opportunities.

Costing Unused Capacity

Equally a balanced production process may have significant unused capacity. Brausch & Taylor's
study found that in general firms do not capture the cost of unused or excess capacity. They
recommend that firms explicitly quantify the lost contribution margin from unused capacity as a
form of "waste" variance. An example of such a report at income statement level is given by
Cooper & Kaplan (1992) as follows.

INCOME STATEMENT WITH UNUSED CAPACITY

DISCLOSURE Sales $100,000
Less variable costs 70,000
Contribution margin $ 30,000

Less Fixed costs

Used Unused

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Process A $ 6,000 $2,000

Process B $10,000 $4,000
$16,000 $6,000 $ 22,000
Operating Income $ 8,000
======

Income Maximisation from Marginal Pricing

The insight provided by linear programming of the marginal contribution to be gained from scarce
resources has been operationalised in the airline industry in sophisticated yield management
sys tems. These enable firms to practice price discrimination reflecting the degree of capacity filled
on a flight based on current bookings and expected final capacity occupancy. Thus early bookers
get cheaper tickets than those who have left themselves the flexibility of booking late (with final
assessments of unused capacity leaving the possibility of cheap marginally costed seats for the least
risk averse consumer. The transaction costs of such systems have fallen dramatically with the
advent of internet booking which now accounts for a significant percentage of ticket sales.

CONCLUSION
The most significant question arising from this paper is not merely that the TOC's criticism of
accounting metrics are flawed, or that its own metrics are merely simplified (and inferior) versions
of other measures or methods in accounting and management science, and whose restrictive
assumptions apply in fewer cases than the models it draws on. Rather it is why the accounting
literature has in many cases embraced what is effectively a regressive (or dumbed down) theory.
This is interesting since narrative stands as a substitute for empirical evidence in most of Goldratt's
work and he ignores academic debates on accounting theory and practice (Jones and Dugdale
1998). They point out that Goldratt almost never cites any other writer, although in presentations
he frequently appeals to Plato and Isaac Newton.

Despite this Jones and Dugdale accept the TOC as having considerable potential as a theory of
transformation. They claim it has "a methodology capable of directing change in specific ways, and
it anticipates objections and hindrances so that they may be countered". This last point is at best
arguable since it anticipates only selective objections and simply assumes away others e.g. in
assuming that there is normally only one binding constraint which is clearly identifiable, and stable,
it ignores the frequent inter-relationship of different constraints.

However TOC clearly has clear potential to act as a vehicle to encour age firms to adopt the
marginal costing techniques for decision-making purposes recommended by the textbooks. An
over-simplified applications of those principles is better than no application at all. It also directs
managers to the strategically important insight that relative product profitability is unimportant, it
the profitability of resource usage that matters, in particular the profitable use of the scarcest
resources. In this it has emerged as a competitor for activity based costing in the popular
marketplace.

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BIBLIOGRAPHY
Atwater, B. & Gagne M.L. (1997). 'The Theory of Constraints versus Contribution Margin Analysis for
Product Mix Decisions', Journal of Cost Management, January-February, 6-15.

Balderstone, S. & Keef S.P. (1999). 'Throughput Accounting: exploding an urban myth', Management
Accounting (CIMA), October, 26-27.

Blackstone, J.H. (2001). ‘Theory of Constraints – a Status Report’. International Journal of Production
Research 39(6), 1053-1080.

Brausch, J.M. & Taylor T.C. (1997). 'Who is accounting for the Cost of Capacity', Management Accounting
(USA), February, 44-50.

Clarke, P.J. (1992). 'Management Accounting Practices and Techniques in Irish Manufacturing Firms: a
Pilot Study'. The Irish Accounting and Finance Association Proceedings, 17- 34.
Cooper R. & Kaplan R. (1992). 'Activity -Based Systems: Measuring the Costs of Resource Usage'.
Accounting Horizons 6(3), 1-13.

Dugdale, T.C. & Jones, D.(1998). 'Throughput Accounting: Transforming Practices?', British Accounting
Review 30, 203-220.

Goldratt, E.M. & Cox, J. (1993). 'The Goal', second edition. Gower.

Horngren, C.T., Bhimani, A., Foster, G. & Datar, S.M. (1999). 'Management and Cost Accounting'. Prentice
Hall Europe.

Horngren, C.T., Foster, G. & Datar, S.M. (2000 10/ed, 1982; also 5/ed Horngren alone). 'Cost Accounting:
A Managerial Emphasis'. Prentice Hall.

Jones, D. & Dugdale, T.C. (1998). 'Theory of Constraints: Transforming Ideas?', British Accounting Review
30, 73-91.
Kaplan R.S. & Atkinson A.A. (1989 2/ed, 1998 3/ed). 'Advanced Management Accounting'. Prentice Hall.
Luebbe, R. & Finch, B. (1992). 'Theory of Constraints and linear programming: a comparison', International
Journal of Production Research 30(6), 1471-1478.

Miller, P. & O’Leary, T. (1993). ‘Accounting expertise and the Politics of the Product: Economic
Citizenship and Modes of Corporate Governance’, Accounting, Organisations and Society 12(3), 187-206.
Morse, D.C. & Zimmerman, J.L. (1997). 'Managerial Accounting'. Boston, Irwin/McGraw Hill.
Noreen, E., Smith D. & Mackey, J.T. (1995). 'The Theory of Constraints and its Application to Management
Accounting'. New York, North River Press.
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Pierce, B. & O'Dea, T. (1998). 'An Empirical Study of Management Accounting Practices in Ireland', Irish
Accounting Review 5(2): 35- 66.

Salafatinos, C. (1995). ‘Integrating the Theory of Constraints and Activity Based Costing’, Journal of Cost
Management, Fall: 58-67.

Tollington T. (1998). 'ABC v TOC same cloth as absorption v marginal, different style and cut?',
Management Accounting (CIMA), April 44-45.

Umble, M.M. & Umble E.J. (1998). ‘How to apply the Theory of Constraints’Five-Step Process of
Continuous Improvement’, Journal of Cost Management, September-October: 5-14.
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APPENDIX B

Weekly Profit of the Firm with each Product Mix

Throughput Value based production plan

Total Q P Product
36 100 Units

7160 2160 5000 Revenues (P @$50/unit, Q @$60/unit)

2468 468 2000 less Raw Materials (P @$20/unit, Q @$13/unit)

676 126 550 less Dir. Labour (P @$5.50/unit, Q @$3.50/unit)
811 151 660 less Var. Overhead (P @$6.60/unit, Q @$4.20/unit)

1400 less Other Operating Expenses (assumed Fixed)

1805 Weekly Profit

Contribution Margin based production plan

Q P Product
50 76 Units

6800 3000 3800 Revenues (P @$50/unit, Q @$60/unit)

2170 650 1520 less Raw Materials (P @$20/unit, Q @$13/unit)

593 175 418 less Dir. Labour (P @$5.50/unit, Q @$3.50/unit)
712 210 502 less Var. Overhead (P @$6.60/unit, Q @$4.20/unit)

1400 less Other Operating Expenses (assumed Fixed)

1925 Weekly Profit

120 Increase in Weekly Profit

21