The use of absorption costing can result in misleading product cost information.

Question

Quizplus · Accepted Answer

Absorption costing includes all manufacturing costs, whether they are variable or fixed, in the cost of the product. This can lead to overvaluing inventory and underestimating the cost of goods sold, resulting in misleading product cost information. Additionally, absorption costing does not account for the differences in production volumes or activity levels, which can also distort product cost information.

The Use of Absorption Costing Can Result in Misleading Product