Which of the following steps can a management take to reduce the undesirable effects of absorption costing?
A) It can evaluate managers on quarterly basis rather than the usual yearly period thereby mitigating the undesirable effects of absorption costing.
B) It can delegate powers to managers to decide which orders they want to accept so that any order which will lead to inventory build-up can be rejected.
C) It can empower managers to decide the timings of maintenance of plants thereby ensuring that the production is not affected.
D) It can encourage using nonfinancial measures such as units in ending inventory compared to units in sales.

Question

Quizplus · Accepted Answer

Option D is the best choice because it suggests using nonfinancial measures such as units in ending inventory compared to units in sales, which can help reduce the undesirable effects of absorption costing. This approach focuses on the physical units produced and their corresponding costs, rather than on arbitrary allocations of overhead costs that can distort the true cost of production. The other options may help mitigate some of the negative effects of absorption costing, but they do not directly address the issue of artificially inflating costs due to allocation of fixed overhead costs.

Which of the Following Steps Can a Management Take to Reduce