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a) Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Give an example. ( 3 Marks) (a) There are several Examples of using absorption costing leads to undesirable incentive for managers one of them can be like if plant manager may switch production to those orders that absorb highest amount of fixed manufacturing overhead, irrespective of the demand by customers. There could be another case like plant manager accepts a particular order to increase the production even though another plant in the same company is better suited to handle that order.

a) Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Give an example. ( 3 Marks) (a) There are several Examples of using absorption costing leads to undesirable incentive for managers one of them can be like if plant manager may switch production to those orders that absorb highest amount of fixed manufacturing overhead, irrespective of the demand by customers. There could be another case like plant manager accepts a particular order to increase the production even though another plant in the same company is better suited to handle that order.

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