The problem with using full absorption cost information when setting prices is that it clouds the true relationships among price,volume,and costs by including fixed expenses in unit cost.

Question

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Full absorption costing includes fixed costs in the calculation of unit costs, which can lead to inaccurate pricing decisions as it can obscure the true relationship between price, volume, and variable costs. Instead, variable costing, which only includes variable costs in the unit cost calculation, may be more appropriate for setting prices.

The Problem with Using Full Absorption Cost Information When Setting