Calculate total expenses under absorption costing

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Reference no: EM131211251

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 of 10,000 units 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. Note: Regarding 2a) you want to calculate total expenses under absorption costing and under Goldratt's method and then compare them. Sales price of the units is not needed.

Reference no: EM131211251

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