Constraint

Definition

A constraint is a limitation or restriction on the availability of resources, such as time, labor, or materials. Constraints impact how businesses prioritize and allocate resources in decision-making processes.

5 Must Know Facts For Your Next Test

1. Constraints necessitate prioritization of certain activities over others to maximize profitability.
2. In managerial accounting, constraints are often identified through bottleneck analysis.
3. The Theory of Constraints (TOC) provides a framework for managing constraints to improve business performance.
4. When resources are constrained, decisions should focus on maximizing contribution margin per unit of the constrained resource.
5. Identifying and addressing constraints can lead to more efficient production schedules and better financial outcomes.

Review Questions

• What is a constraint in the context of managerial accounting?
• How does the Theory of Constraints help in short-term decision making?
• Why is it important to calculate the contribution margin per unit of the constrained resource?

Related terms

Bottleneck:

A point in the production process where the flow of operations slows down due to limited capacity.

Contribution Margin:

The amount remaining from sales revenue after variable expenses have been deducted.

Theory of Constraints (TOC): A management approach that focuses on identifying and managing the most limiting factor (constraint) that stands in the way of achieving a goal.