Disadvantages/ Drawbacks of Absorption Costing

The absorption costing is no doubt a good system of costing the product but it has few drawbacks as well which are as follows:


  1. It helps very little in making key decisions about the productivity and performance,
  2. 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,
  3. 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.