Which of the following is an example that critics of absorption costing may use to show that its use may generate unwanted manager actions?

A. Plant managers may defer maintenance beyond the current period to free up more time for production.

B. Plant managers may accept a particular order to increase production even though another plant in the same company is better suited to handle that order.

C. Plant managers may switch production to those orders that absorb the highest amount of fixed manufacturing overhead, irrespective of the demand by customers.

D. All of the above.

Question

Business

Ignacio

19 October, 02:25

Which of the following is an example that critics of absorption costing may use to show that its use may generate unwanted manager actions?

A. Plant managers may defer maintenance beyond the current period to free up more time for production.

B. Plant managers may accept a particular order to increase production even though another plant in the same company is better suited to handle that order.

C. Plant managers may switch production to those orders that absorb the highest amount of fixed manufacturing overhead, irrespective of the demand by customers.

D. All of the above.

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Answers (1)

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Myla Cherry · Answer 1

D. All of the above.

Explanation:

Absorption costing is the method in which cost is charged on the basis of the actual expenses and facilities absorbed ion the production.

This basically charges usually more cost, in comparison to activity based costing.

In this manner since cost charged is more, the profit for the company is reduced. Accordingly the managers then prefer to produce as much as they can.

The main focus of management is for production.

Even in case this requires maintenance they put the resources into production rather than maintenance.

Thus, all of the statements are true.