An advantage of using absorption costing is that it prevents managers from increasing production solely for the purpose of inflating profit.

Question

Quizplus · Accepted Answer

This statement is actually the opposite of the advantage of using absorption costing. Absorption costing includes fixed overhead costs in the cost of goods produced, which means that increasing production can often result in lower unit costs and higher reported profits. This can create an incentive for managers to increase production levels, even if there is no corresponding increase in demand or sales. Therefore, absorption costing may actually encourage managers to inflate profit by increasing production.

An Advantage of Using Absorption Costing Is That It Prevents