Sample Term Paper
“The Theory of Constraints (TOC) is a production-flow management system. In every system there is one process, known as the constraint, that has the least capacity (or slowest production rate). Output for the entire system is determined by the production rate of this constraint, or bottleneck. Hence, TOC argues production flow for the entire facility must be planned around the constraint.” (Marco, 2006)
Theory of Constraints is also a pull system; only it is based on identifying and optimizing the bottleneck. Thus, other processes are subordinated to the constraint. TOC also improves flow and reduces excess work-in-process inventory by releasing materials only for those products that are sold.
Costs can be classified on the basis of business function, product vs. period cost, cost objective etc.
Costs on the Basis of Business Function
- Manufacturing costs – “All costs needed to acquire basic materials from a supplier and convert them into finished products” (Helmkamp, 1990, p. 36)
- Selling costs – “All costs incurred to market and deliver finished products” (Helmkamp, 1990, p. 36)
- Administrative costs – “All costs needed for the general management of the organization” (Helmkamp, 1990, p. 36) e.g. executive salaries, office supplies etc.
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