Understand the Implications of Undercosting and Overcosting with Myhomeworkhelp.com
Have you been working on your activity based accounting assignment? Are you failing to understand why overcosting and undercosting takes place? Are you failing to understand its causes? The topic of costing in accounts poses great difficulty for the students. The variations in costing successfully confuse students so much so that they give up working on their assignments. In such cases, it is important to opt for undercosting and overcosting homework help and save the marks associated with that assignment.
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But before you panic and simply go opt for undercosting and overcosting homework help, it is necessary to first understand and grasp the concept of exactly what overcosting and undercosting actually are and what causes it. The main reason for the existence of overcosting and undercosting is the use of broad averages to allocate overhead costs.
What is undercosting?
When a product consumes a high level of resources but has a low cost per unit, that particular product is said to be undercosting. Undercosted products are often under-priced and even lead to loss as it fails to generate enough revenue. Undercosting and overcosting assignment help can make you understand it better with an example.
Let’s say, under traditional costing the overhead allocated to product A is $2 per unit and under ABC it is $2.50. Since ABC provides more accurate costing, it can be assumed that ABC is better cost indicator at $2. Under traditional costing, the manager will operate with the belief that each product cost about $0.50 less and will establish lower selling prices. Thus, they will incur loss under the traditional costing method.
What is overcosting?
When a product consumes a low level of resources but has a high cost per unit, that product is said to be overcosting. Overcosted products result in highly priced products which result in the product to lose out to its competitors in the market. It can be better understood with an example from undercosting and overcosting assignment help.
Suppose the overhead allocated to product B is $3 per unit under traditional costing, and under ABC it is $2.50. When the company depends on traditional costing, the manager believes that the product costs $0.50 more. Thus, they will establish a higher selling price for the product and hence lose out to the competitors. This reliance on traditional costing is known as overcosting.
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