Throughput costing provides more incentive to produce for inventory than either variable costing or, especially, absorption costing.

Question

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Throughput costing only considers direct material costs as product costs, meaning that fixed overhead costs are considered period costs and are expensed in the period they are incurred. This means that inventory holding costs, which are included in absorption and variable costing methods, are not considered in throughput costing. This gives less incentive to produce for inventory and more incentive to produce only when there is a demand for the product, as any excess inventory will not receive the benefit of fixed overhead cost absorption.

Throughput Costing Provides More Incentive to Produce for Inventory Than