Economic theory, cost accounting and theory of constraints: an examination of relationships and problems

The theory of constraints (TOC) is a production planning and control system reported to improve manufacturing performance surpassing both materials-requirement planning and just-in-time systems. One requirement of TOC is the assumption of a cost-accounting system that is very different from traditional cost accounting. This study examines the conflict between traditional cost accounting and TOC accounting, presents a description of how the TOC method operates at The Trane Company (Macon, GA) and how the cost accounting aspect of TOC was used to evaluate the addition of a new product line proposed by marketing.