Leigh steel Case study Example | Topics and Well Written Essays - 500 words

Leigh steel - Case Study Example Standard costing assumes that profitability is linear and increase in production volumes should increase profitability. This costing method only gets the difference of the selling price and the total expenses. There is an assumption that the overheads are attributable to products forms the main bases of this model. ABC focuses on the cost of the activities that are involved in production of a product while in ToC costs are associated to the limiting factors that affect the optimization of profits. ToC takes into consideration that all limiting factors can be redefined further. ToC is concerned with the time-value for money. It restricts costs to limitations of value of each constraint. These constraints identification is the most crucial part of this theory. The fact is emphasized by the fact the fifth stage of is a continuation of refinement of the constraints. It is important that in further refinement the existing constraints do not become new constraints. If the previous constraints is considered then the cost may attract double cost. Edward states â€Å"Throughput was defined as quantity of money† as profit are maximized by â€Å"maximizing throughput per unit†. Assignment of cost in ABC is made by assigning cost to the various activities, this model assumes that only the activities of production contributes to the cost of the product. This assumptions does not take into consideration the cost of decision making in the company. Decision making on when to produce a product and the product mix based on the volume or expected demand is a key part of ToC. Lehigh’s decision-making is put into consideration when using ToC in evaluating the cost of inventory valuation. Standard Costing takes into consideration only the pounds weight of the product to calculate its cost. There is no consideration on the cost of decision-making. Is there a cost incurred due to demand. Standard Costing at Lehigh,