Which of the following is a drawback to absorption costing as opposed to variable costing?
A) Managers can manipulate earnings by simply producing more than is sold in a period
B) Management cannot accurately price products because non-manufacturing overhead is not applied to inventory
C) Fixed overhead is simply expensed as a period cost without being properly considered as a cost of inventory
D) Absorption costing is not allowed for GAAP purposes
E) There is no drawback: absorption costing is always preferable to variable costing

Question

Quizplus · Accepted Answer

Absorption costing allows managers to potentially manipulate earnings by producing more than is sold, which can inflate inventory values and defer expense recognition.

Which of the Following Is a Drawback to Absorption Costing