TOC tends to be more in line with an absorption costing approach to decision making,which may result in a wrong decision being made for the company's long-term profitability.

Question

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TOC (Theory of Constraints) tends to follow a variable costing approach to decision making, where only the direct costs of producing a product or service are included in the decision analysis. This approach is typically more focused on short-term profitability rather than long-term profitability. In contrast, absorption costing includes both direct and indirect costs, and provides a more comprehensive view of the cost structure of a product or service. Therefore, TOC may result in a decision that overlooks the long-term impact of indirect costs on profitability.

TOC Tends to Be More in Line with an Absorption