Final answer:
Using absorption costing can lead to under-costing of segments in segmented income statements due to the allocation of fixed costs across all products, which may not accurately represent the true profitability of individual segments.
Step-by-step explanation:
Using absorption costing for segmented income statements can lead to an under-costing of segments. This is because absorption costing allocates all manufacturing costs to products, including fixed factory overhead. When used in segmented reporting, it may not accurately reflect the true profitability of individual segments if these segments do not equally utilize the shared fixed costs. Segments with lower usage of fixed resources may appear more profitable than they actually are, as the costs are spread over all products regardless of the segment's actual consumption of these overheads.
On the other hand, some argue that these allocations can help avoid the omission of certain costs that might occur if only variable costs were considered, as in variable or direct costing. However, this can cause problems for decision-making if managers are not aware of the implications of this costing approach on the segmented financial statements.