If a company undercosts one of its products from indirect cost smoothing, then it will overcost at least one of its other products.

Question

Quizplus · Accepted Answer

Indirect cost smoothing involves allocating indirect costs across different products based on some allocation method. If the company undercosts one of its products by allocating a smaller portion of indirect costs to it, then it must allocate a larger portion of indirect costs to at least one of its other products in order to maintain the total amount of indirect costs allocated across all products. This results in overcosting of that product.

If a Company Undercosts One of Its Products from Indirect