Based on the theory of constraints, investments equal ________.
A) the sum of material costs in direct and indirect materials, work-in-process, and finished goods inventories; R&D costs; and business function costs
B) the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; and capital costs of equipment and buildings
C) the sum of material costs in direct and indirect materials, work-in-process, and finished goods inventories; R&D costs; and full costs
D) the sum of material costs in direct materials, work-in-process, and finished goods inventories; R&D costs; sunk costs, full costs, and business function costs

Question

Quizplus · Accepted Answer

According to the theory of constraints, investments should only include the relevant costs that directly contribute to generating profits. These costs include material costs in direct materials, work-in-process, and finished goods inventories as well as capital costs of equipment and buildings. R&D costs may also be included if they directly contribute to generating profits. Indirect costs, sunk costs, and business function costs are not included in this calculation as they do not directly contribute to generating profits. Therefore, choice B is the best answer.

Based on the Theory of Constraints, Investments Equal ________