Using Activity Based Costing and Theory of Constraints to Enhance Decision Making at Duographics B.V.: A Case Study

20 Pages Posted: 25 Sep 2005

Date Written: July 2005


This case is about Activity Based Costing (ABC) and throughput accounting (TA) as accounting tools to structure technical (process) insights in an accounting context. The case shows how working-floor insights and production process data can be used in the computation of income statements that are relevant managerial decision making. The throughput accounting part of the case stimulates a discussion on (short run) avoidable costs and hence provides necessary input for short-run managerial decision making.

It is essential to understand that ABC is a method that tries to frame data in a managerial decision making context. Models, figures and theories only have value to the extent that they help us to understand and explain what happens in the company. ABC is an allocation method cum story: it is an arbitrary way to allocate costs - as arbitrary as any other allocation method - but it helps in communicating how the (production) process works and, therefore, tries to upgrade the value of accounting in the decision making process. If, e.g., a good driver is found and if there is statistical evidence that supports the choice of and/or work-floor feeling on such a driver, using this cost driver in the calculations of product (line) profitability makes the accounting much more vivid and important to decision making.

Mr. Van Schenkel, founder and owner of small company producing colour printed T-shirts, has some ideas on why multi-coloured T-shirts are more expensive in production than T-shirts with fewer colours printed on them. Process mapping and accounting data are available to set up an ABC system that will allow to test the validity of Mr. Van Schenkel's ideas and to come to better accounting calculations of product profitability. The case illustrates how ABC calculations can support managerial decision making and lead to ABM (activity based management), enabling the company to better understand how its process works and how this understanding can be put to use in an accounting context (income statement, performance evaluation, product profitability, ...).

Keywords: Activity-based costing, Theory of Constraints, Case Study

JEL Classification: M11, M41

Suggested Citation

Vergauwen, Philip G. M. C. and Kerckhoffs, Christian, Using Activity Based Costing and Theory of Constraints to Enhance Decision Making at Duographics B.V.: A Case Study (July 2005). Available at SSRN: or

Philip G. M. C. Vergauwen (Contact Author)

University of Maastrich ( email )

P.O. Box 616
Maastricht, Limburg 6200MD

Christian Kerckhoffs

Universiteit Maastricht ( email )

P.O. Box 616
Maastricht, 6200 MD

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