Answer
Absorption costing may incentivize managers to overproduce, as it lowers the per-unit fixed cost when production increases. This can lead to excess inventory and tie up resources, potentially conflicting with actual market demand and business efficiency.
Work Step by Step
Absorption costing may incentivize managers to overproduce, as it lowers the per-unit fixed cost when production increases. This can lead to excess inventory and tie up resources, potentially conflicting with actual market demand and business efficiency.