The absorption costing is no doubt a good system of costing the product but it has few drawbacks as well which are as follows:
Disadvantages
- It helps very little in making key decisions about the productivity and performance,
- it is not a good idea to consider fixed cost in every level of output because it is the fixed factor no matter how much the entity is willing to produce,
- As it focuses on profit maximisation, the managers may go for over production which causes a lot of unsold stock in the warehouse. This increases the profit for the current period which is misleading the top management because the profit is not real.