Flavorful Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 519 revealed a traditionally-derived total cost of $1,019, a selling price of $1,850 based on that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is true?
A) All other things being equal, the company should consider a drop in its sales price.
B) The company may have been extremely competitive in the marketplace from a price perspective.
C) Product no. 519 could be labeled as being overcosted by the firm's traditional costing procedures.
D) If product no. 519 is undercosted by traditional accounting procedures, then all of the company's other products must be undercosted as well.
E) Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.

Question

Quizplus · Accepted Answer

The company may have been pricing product no. 519 too competitively (i.e., too low) based on the traditional costing method, which underestimated the product's cost compared to the activity-based costing method. This suggests that the selling price could have been set lower than necessary if the more accurate activity-based cost had been used.

Flavorful Manufacturing Sells a Number of Goods Whose Selling Price