Question

A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:

Answer 1

excess inventory buildup

Step-by-step explanation:

The absorption costing is the costing which covers full costing i.e direct costing and indirect costing

Here directing costing could be in terms of direct material, direct labor

While the indirect costing could be in terms of manufacturing overhead or indirect cost

In the given case since the managers who are rewarding in order to link bonus to income so it would be results in building excess inventory and the same is to be considered