How can full-absorption costing hurt a company?

Question

Quizplus · Accepted Answer

Full-absorption costing allocates fixed costs to inventory, which means that the cost per unit will decrease as more units are produced. This can create an incentive for the company to produce more inventory than they can sell or need, leading to excessive inventory costs and potential write-offs. Additionally, if there is a decrease in sales or production, the fixed costs will still be included in the cost per unit, leading to lower profits or even losses.

How Can Full-Absorption Costing Hurt a Company