To discourage producing for inventory,management can ________.
A) discourage using nonfinancial measures such as units in ending inventory compared to units in sales
B) evaluate performance over a quarterly period rather than a single year
C) incorporate a carrying charge for inventory in the internal accounting system
D) implement absorption costing across all departments

Question

Quizplus · Accepted Answer

By incorporating a carrying charge for inventory in the internal accounting system, management is increasing the cost of holding onto inventory and therefore decreasing the incentive to produce more inventory. This cost can be in the form of interest charges, insurance costs, or storage fees. This discourages the business from over-producing and holding onto excess inventory. Other options such as discouraging nonfinancial measures or implementing absorption costing may have some impact on inventory levels, but they do not directly address the issue of discouraging producing for inventory. Evaluating performance over a quarterly period instead of a single year could also help management better track inventory levels, but it does not directly discourage producing for inventory.

To Discourage Producing for Inventory,management Can ________