Production planning and control and cost accounting systems: Effects on management decision making and firm performance

Cost accounting systems and production planning and control have evolved significantly over the past 75 years. While both direct costing and labor-based allocation of overhead costs have been used for much of the 20th century, activity-based costing and the theory of constraints, which includes elements of a cost system, have been developed only in the last 15 to 20 years. In production, reorder point systems were most common for most of this century, but development of JIT in Japan starting in the early 1950s and MRP in the U.S. starting in the late 1960s have brought significant changes. In addition, the theory of constraints also includes production management techniques. While the cost accounting and operations management literatures each include comparisons of the four systems in their respective areas, neither literature includes comprehensive comparisons of combinations of production planning and control systems and cost accounting systems. The comparisons that have been done have been limited to simple examples developed to illustrate the superiority of one or another of the systems under certain conditions, and generally compare either cost accounting systems or production planning and control systems while holding the other system fixed.; A systematic comparison of combinations of the four cost accounting systems and four production planning and control systems under a wide range of circumstances that allows identification of the conditions under which any combination of the systems might result in superior management decisions and improved firm performance was undertaken. The results suggest that the theory of constraints provides both superior decisions and superior operating performance.