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In chapter 29 of The Goal, Alex attempts to explain to Julie the deficiencies of traditional absorption costing. He states: So with more set-ups, the
In chapter 29 of "The Goal", Alex attempts to explain to Julie the deficiencies of traditional absorption costing. He states: "So with more set-ups, the cost of making parts goes up," says Julie. "How could the measurement be wrong?" Julie asks. Alex responds: "The measurement assumes that all of the workers in the plant are going to be fully occupies, and therefore, in order to do more setups, you have to hire more people. That isn't true." Is it possible that the real reason that the company's cost system is deriving erroneous unit costs is treatment of direct labor as a variable cost rather than as fixed cost? Use Alex's example beginning on page 239 to illustrate your
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