An application on the integration of the theory of constraints and the time driven activity based costing system for the improvement of production processes and costs

In today's enterprises, increasing use of technology in manufacturing activities reduces the accuracy of product cost information calculated according to traditional cost methods. In this framework, the Time Driven Activity Based Costing System (TDABC) was developed to eliminate the deficiencies in the allocation of factory overhead costs in the traditional system. TDABC system is a contemporary cost and management accounting approach that determines product costs based on their usage of production activities. TDABC system allows detailed companies examination of their activities, costs and production processes. In this study, TDABC system is discussed with the theory of constraints. This integration has enabled to determine the bottleneck activities by examining the entire production capacity. For this purpose, descriptive and explanatory case studies are carried out in a manufacturing company. According to case study, the existing cost system of the company are examined and capacity usage rate based on TDABC system and capacity constraints are determined within the framework of the theory of constraints. Then the solutions based on five-stage improvement of theory of constraints are proposed to reduce identified capacity constraints.