When managers are compensated based on income levels, they may have an incentive to overproduce inventory units if income is computed using
A) Throughput costing
B) Variable costing
C) Absorption costing
D) Managers have an incentive to overproduce under all 3 methods

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so producing more units can spread the fixed costs over more units, increasing reported income.

When Managers Are Compensated Based on Income Levels, They May