In “The Goal” by Eliyahu Goldratt Alex Rogo is the plant manager of an unprofitable plant and is given an ultimatum to improve his plant in the next 3 months or the plant will be shut down. In an attempt to save his plant, Alex decides to break the normal manufacturing protocols and company policies to try help his plant make money. With the help of a few managers in his plant, these decisions turn the plant around tremendously and succeeded in saving his plant. In evaluating his decisions, he and his managers made the conclusion that “if it comes from cost accounting it must be wrong” (Goldratt, p.307). While in their situation it may have appeared like that was the case, but it certainly isn’t entirely correct. Since cost accounting has many …show more content…
Cost accounting is very useful information when the person evaluating the figures knows how to correctly apply them to their business. Managers often misinterpret information presented to them because they don’t have the full knowledge of what the information in front of them really represents. For instance, if a company is using full costing to evaluate their product lines they will be allocating their fixed overhead costs to each product line based on a variable such as sales or direct labor hours. If any one of the product lines has a negative gross profit, or a gross loss, many managers would want to cut the product line to eliminate the unprofitable product line Eliminating the product line would be the wrong thing to do if the product line has a positive …show more content…
Cost accounting has many different methods of assigning costs and presenting information such as variable costing and absorption costing. Both of these methods of accounting are useful for looking at different time frames and decision types. Variable costing is useful for short term decisions and decisions like continuing or cutting a product line or making or buying a certain part not a decision such as if an entire plant if profitable or if the business should shut down entirely. Those kinds of decisions should be made by using absorption costing information which allocates all of the fixed costs to the products so the total cost per unit will be higher because you have to cover all of the fixed costs eventually or you cannot stay operational. These types of costing information require knowledge and training to know how to apply it correctly to the specifics of the product being