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Horngren's Cost Accounting 17th Edition

Horngren's Cost Accounting (17th Edition)

Book Edition17th Edition
Author(s)Datar, Rajan

Chapter 5, End of Chapter, Decision Points, Exercise 1

Page 175

Here is a tip:

Understating and overstating is the difference in the actual cost and the cost of the product estimated by the manager.


Different costs derived using the broad average method and the activity based cost system result in undercosting and overcosting of the product, respectively.

  • The products are understated when maximum resources are put into use in making the products. However, a low cost is required for such products.
  • The products are overstated when the utilization of maximum resources by the companies, result in high cost. This ultimately adds to the cost of the products. High resource cost results in a high cost of product.

Verified Answer

Product under costing or over costing occurs when there is a mismatch between product's cost and level of consumption of the resources.  

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