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Eli Goldratt advocates that all manufacturing costs other than materials be treated as operating expenses...

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Accounting

Eli Goldratt advocates that all manufacturing costs other than materials be treated as operating expenses for the period. Periodic profits would be calculated as: Sales xxx Less cost of material xxx Less all nonmaterial operating expense xxx Net income xxx Operating data for last year are Units produced 12,000 Unit sales 10,000 Material cost/unit produced $0.45 per unit Labor cost/unit produced 0.35 Overhead/unit produced 0.38 There is no beginning inventory. Required: a. Compare profits under absorption costing and Goldratt's method. b. Evaluate Goldratt's proposal.

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