The proposed model reduces to the TOC when all labor and overhead are committed costs in the short run.
The flexible and committed costs were divided by the set-up activity's practical capacity to determine a flexible and committed cost driver rate of $50 and $450 per set-up hour, respectively.
Engineering's expected total, flexible, and committed costs were divided by the activity's practical capacity of 1,000 drawings to derive total, flexible, and committed cost driver rates of $1,200, $180, and $1,020 per drawing, respectively.
First, the operational ABC model reduces to the TOC when all labor and overhead resources are committed costs. However, in cases where some labor and overhead resources are a flexible cost in the short run, the operational ABC model reflects these resources as an incremental cost, while the TOC does not.
In effect, over an extended time horizon, a company s committed cost is subject to management control.
Under ABC, an activity's resources are disaggregated into either flexible or committed cost (Cooper and Kaplan, 1992).
In the short run, an activity's committed cost is a sunk cost that is irrelevant for decision making.
The difference between the two rates is the committed cost driver rate for assembly.