TOC and ABC

Organizations that implement the TOC often use activity-based costing as well. TOC and ABC are both used by organizations to assess product profitability but there are a few differences in how these two cost management methods are used.

TOC takes a short-term approach to profitability analysis with an emphasis on materials-related costs. ABC examines long-term costing, including all product costs.

TOC considers how to improve short-term profitability by focusing on production constraints and plausible short-term product mix adjustments. ABC does not consider resource constraints and process capability; it analyzes cost drivers and accurate unit costs for long-term strategic pricing and profit planning decisions.

ABC is generally used as a tool for planning and control.

The short-term aspects of TOC and the long-range focus of ABC make them complementary
profitability analysis methods.