Which of the following statements is TRUE concerning product costing systems?
A)Companies that undercost products always sell products at a loss.
B)Companies that overcost run the risk of losing customers.
C)Undercosting or overcosting does not relate to product cost cross-subsidization.
D)Peanut butter costing is another term for direct costing.
E)Companies that overcost will make more profit by passing along higher prices to customers.

Question

Quizplus · Accepted Answer

Overcosting runs the risk of losing customers because if a company prices their products higher than what customers are willing to pay, they may choose to buy from competitors instead. Undercosting or overcosting can relate to product cost cross-subsidization, which refers to one product subsidizing the costs of another product. Peanut butter costing is not another term for direct costing. Overcosting may lead to higher profits in the short term, but it is not a sustainable strategy as it may lead to loss of customers in the long term.

Which of the Following Statements Is TRUE Concerning Product Costing