A product that consumes few resources but incurs a high per-unit cost is categorized as __________?
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Answer: D. product over costing
Explanation
Product over costing happens when a product consumes few resources but is assigned a high per-unit cost. This distortion usually occurs when broad, volume-based allocation bases are used instead of activity-based drivers. As a result, profitable low-resource products appear more expensive to produce than they actually are. Product costing errors plague traditional manufacturing systems that fail to trace diverse resource demands accurately. Overcosted products subsidize under-costed products, leading to distorted pricing strategies and potential market share loss. Activity-based costing resolves this by aligning overhead with actual resource consumption.
Executives use refined cost systems to correct product overcosting before competitors undercut their prices on high-volume items. Recognizing misallocated costs protects profit margins across diverse product lines. Options A and B use non-standard terminology. Option C describes the general phenomenon where products are under-costed rather than overcosted.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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