A light engineering company calculates its production overhead absorption rate at the end of each month by dividing the total actual overheads incurred by the total numbers of units produced in that month, applying this rate retrospectively to the month's production. The company produces a variety of products and uses a variety of production methods and equipment for the different products which are subject to seasonal fluctuations in demand and therefore in production activity.

Required:

Discuss the effect of the above system of overhead absorption on the product costs and pricing policy.