Absorption Costing Can Be Criticized as a Method That Encourages

question 8

True/False

Absorption costing can be criticized as a method that encourages managers to make decisions that may be contrary to the long-term interest of the company.

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Definitions:

Machine-Hours

A measure of production time, tracking how many hours machines are operating in the manufacturing process.

Predetermined Overhead Rate

This rate is calculated before the period begins and is used to apply manufacturing overhead costs to products based on a consistent formula.

Fixed Manufacturing Overhead

Costs in manufacturing that do not vary with the level of production, including factory rent, salaries of permanent staff, and equipment depreciation.

Machine-Hours

A measure of the amount of time machines are operated in the manufacturing process, used as a basis for allocating costs.