Why is units shipped instead of units produced used as the denominator in the calculation of product costs for value streams with multiple products?
A)It reduces conversion costs assigned to the value stream.
B)It motivates managers to reduce inventories.
C)Units shipped are always greater than units produced.
D)Units produced encourages managers to increase inventory.

Question

Quizplus · Accepted Answer

Using units shipped as the denominator encourages managers to focus on reducing inventory levels and aligning production with actual demand, rather than producing excess units that may not be immediately needed.

Why Is Units Shipped Instead of Units Produced Used as the Denominator