Optimal decision making using cost accounting information

The primary objective of this paper was to compare the results of using four different cost accounting systems (traditional cost accounting, activity-based costing, direct costing, and throughput accounting) in a resource-constrained production environment in order to make two categories of decisions that managers frequently use cost accounting information to make. The research design includes a survey of manufacturing managers to determine what decisions cost accounting information is used to make, and a simulation model to determine the results of the decisions. In addition, the results of the four cost accounting models are compared with a linear programming solution. The study found that the throughput accounting model in all cases made the same decision as the linear programming model, but the other three cost accounting systems generally produced suboptimal results. Our conclusion is that for a cost accounting system to provide information for optimal decisions, it must (1) be aware of production constraints, and (2) not use allocated costs.