Integrating Activity-based Costing and Theory of Constrain for SMEs Operating Decision

• Main Authors: TSEN-SHU TSAUR, 曹曾樹
• Other Authors: Wen-Hsien Tsai
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/09706145693018998098

博士 === 國立中央大學 === 企業管理學系 === 102 === In Taiwan, SMEs play an essential role in job creation, which the vitality and growth of SMEs are recognized as important elements in share of employment and stable the economic development. It is found that around 42% of new businesses start-up in the UK annually, but one-third of start-ups ceased trading within three years. It’s not lack of customers or products that destroy businesses, but is lack of cash. Due to the weak financial management characteristics, SMEs cannot afford to starve of cash by their vulnerability to a fluctuation level of working capital. Working capital management (WCM) and the credit risk measurement in the early stage of firms are specially importance to SMEs. With limited access to the long-run capital markets, these firms are more rely on their owner financing, trade credit and short-run bank loans to support their needed investment in cash, accounts receivable and inventory. In practice, most SMEs rely on the product profitability and experience to manage their scarce source of funds in daily activities. Hence, most of SMEs are subjected to the financing risk potential. Currently, the mighty activity-based costing (ABC) system help manager lead to the best operating decisions on profitability analysis, which is called upon to help break down, analyze the nature of object costs in products and activities that generate costs and maximize product profitability. It provides a best way to distinguish non-value added activities, processes and products. However, it may ignore resource constraints in the process and fail to consider managers’ restrictions on financing and operating cash flow, and then the collapse of enterprise was possibly happened with the shortage of operating cash flow. To avoid ignoring important financial factors, Theory of Constraints (TOC) may provide a better solution when making decisions about the impact under the shortage of working capital condition. Hence, to developing an appropriate financial operating decision model (ODM) for SMEs to assist firm’s owners to carry out a financial assessment tool under operation is a crucial works. The purpose of this research paper is to propose a mathematical programming model that provides the financial decision based on the ABC and TOC, with the adoption of ODM.