Stellar Packaging Products uses absorption costing to compute additional compensation eligibility for managers. In December, Stellar Packaging Products’ controller, Robin Simmons, noted that a considerable production overrun was experienced, resulting in increased ending inventories for its major customer, Estrella Coffee Company. Simmons approached Frank Moses, the production manager, regarding these facts. Moses indicated that indeed, the production overrun was deliberate and completed in order that more overhead application would occur in December, and “everyone would make their year-end bonus.”
Would the situation have changed if the company used variable costing as a basis of additional compensation? Why or why not?
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