Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 22

Firms sell products with high costs at high prices. High selling prices increase revenues and profits. Why then should managers worry about product overcosting?

Step 1 of 3

Over costing:

Over costing refers to the allocating high amount of overhead to a product than it actually utilizes and hence, leads to the overall over costing of the product.

Over costing is due to the high apportionment of overhead cost because these costs are not directly traceable to the product. Over costing can rarely happen in case of direct cost because these can be easily traceable.