CPIM Practice Exam

Which area does the theory of constraints (TOC) accounting NOT include?

1. Operating expense

2. Inventory

3. Fixed costs

4. Throughput

The correct answer is: Fixed costs

The theory of constraints (TOC) accounting focuses on optimizing the performance of a system by managing its constraints. In TOC, three primary components are emphasized: throughput, operating expenses, and inventory. Throughput refers to the rate at which the system generates money through sales, operating expenses are the costs incurred to support production, and inventory represents the money tied up in resources that have not yet been sold. Fixed costs, on the other hand, do not receive explicit attention in TOC accounting. TOC approaches costs in a more variable manner, concentrating on how to maximize throughput while minimizing operating expenses and managing inventory effectively. Consequently, fixed costs are often regarded as irrelevant in the immediate decision-making scenario targeted by TOC, as they are expenses that remain constant regardless of production levels. This distinction illustrates why fixed costs are not an area considered in TOC accounting, making it the correct answer in this context.