A disadvantage of absorption costing is

Name: A disadvantage of absorption costing is
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Absorption costing includes fixed overhead costs in the cost of production, which can encourage inventory build-up as the greater the inventory, the lower the fixed costs per unit. This can lead to overproduction and increased carrying costs. Additionally, absorption costing may not be a useful format for decision making as it does not account for the variable cost per unit and the contribution margin.

A Disadvantage of Absorption Costing Is