Questions: Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Which of the following is an example? A. Plant managers may switch production to those orders that absorb the highest amount of foced manufacturing overhead, irrespective of the demand by customers B. Plant managers may accept a particular order to increase production even though another plant in the same company is better suted to handie that order C. Plant managers may defor maintenance beyond the current period to free up more time for production D. All of the above.

The answer is the last one (D): All of the above.

Explanation for each option:

A. Plant managers may switch production to those orders that absorb the highest amount of fixed manufacturing overhead, irrespective of the demand by customers.

• This is correct because under absorption costing, fixed manufacturing overhead is allocated to products. Managers might prioritize products that absorb more overhead to show lower costs per unit, even if those products are not in high demand.

B. Plant managers may accept a particular order to increase production even though another plant in the same company is better suited to handle that order.

• This is correct because managers might be incentivized to increase production to spread fixed costs over more units, thereby reducing the cost per unit. This can lead to inefficiencies if the order is not handled by the most suitable plant.

C. Plant managers may defer maintenance beyond the current period to free up more time for production.

• This is correct because deferring maintenance can temporarily increase production capacity and output, which can help in spreading fixed costs over more units. However, this can lead to long-term issues and higher costs in the future.

D. All of the above.

• Since all the individual options (A, B, and C) are correct examples of undesirable incentives under absorption costing, the correct answer is D: All of the above.

Summary: Absorption costing can lead to undesirable incentives for managers, such as prioritizing orders that absorb more overhead, accepting orders that are not best suited for their plant, and deferring maintenance to increase production. Therefore, the correct answer is D: All of the above.