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Theory of Constraints and Cost Decisions

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How would the theory of constraints affect a cost decision?

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What is the theory of constraints?

Invented by Dr. Eliyahu Goldratt, an Israeli physicist, education and management specialist, it is a business philosophy which 'strives towards the global objective, or goal of a system through an understanding of the underlying cause and effect dependency and variation of the system in question'.

In other words, an entity is no stronger than its weakest link. In effect, the vulnerably of an entity or process is limited by the weakest section ...

Solution Summary

This solution discusses how the theory of constraints affects a cost decision. Physical and policy constraints are outlined. It also provides examples of cost decisions affected by the theory of constraints, which include inadequate financing to buy material, running close to capacity, insufficient workers, not enough storage and transportation issues. The explanation is given in 291 words with two references.

See Also This Related BrainMass Solution

Decision-Making and Object of the Theory of Constraints

1) What makes a cost relevant for decision-making? Why are fixed costs not relevant for most short-term decisions?

2) The objective of the theory of constraints is to maximize throughput contribution while minimizing investments and operating costs. The theory of constraints assumes a short-run time horizon. How is this accomplished?

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