Summary Of The Goal By Goldratt

Cost accounting provides measurements and analyses that can be used by managers to make decisions. In the book "The Goal," author Eliyahu Goldratt introduces his readers to a manufacturing plant that is struggling to turn profits. The story line follows the plant's manager, Alex Rogo, in his journey of saving the plant after he is told the plant will close in three months unless he can increase the bottom line. After discovering serious manufacturing and costing issues, improving their profits, and saving the plant, Alex and his team ultimately decide that "if it comes from cost accounting it must be wrong" (p. 307). Ironically, all the decisions that Alex's team implement to improve their profits come from their correct interpretation of new
In "The Goal," employees are constantly worried about their production efficiencies. In fact, they get so caught up worrying about efficiencies that they question taking actions to increase profits if they would hurt their efficiency numbers. However, the plant originally defined efficiency by the amount of time a resource was used, causing the managers to believe it was better for a machine to be in constant use than to ever have idle time. Instead, as discussed in the book, managers should define efficiency by the time a resource is utilized; that is, if utilizing a resource is contributing to the company's goal of profitability. In this case, trying to be more efficient caused the plant to produce more inventory than it could sell, creating more costs to store the extra
In the beginning of "The Goal," the characters are reliant on absorption costing, which is used for financial statement presentation. While absorption is beneficial in looking at the company as a whole, it does not provide enough information to substantiate a short-run decision. One flaw of absorption costing is that it allocates fixed costs to each unit of product, overstating the cost of one extra unit of inventory. If a cost is truly fixed, that cost should not be taken into consideration for whether to sell 1,000 more units this month. To make this kind of decision, one would want to look only at the variable costs associated with the additional units of product. By using an absorption costing model for this decision, the unit cost would be overstated and thus could prevent the plant from increasing sales that would increase