Question

Inaccurate product costs can expose a company to the risk of losing market share to competitors.

A) Because competitors may lower their product prices.

B) Because accurate product costs ensure higher profit margins.

C) Because customers are more likely to purchase from companies with accurate cost structures.

D) Because inaccurate product costs lead to higher quality products.

Answer 1

Inaccurate product costs can lead to a company losing market share, as they can result in uncompetitive pricing, either too high or too low.

Step-by-step explanation:

Inaccurate product costs can expose a company to the risk of losing market share to competitors because accurate product costing is essential for setting competitive prices, managing expenses, and maintaining profitability. If a company's costs are inaccurately calculated, it might set prices too high.

It can lead to a loss of customers to competitors with more accurately priced—or cheaper—products. Moreover, competition from firms with better or cheaper products can lead to significant losses for a business, including reduced profits or even closing operations.

Hence, it is crucial for a company to understand and maintain accurate product cost structures to stay competitive in the market. In market scenarios where consumers infer product quality from price, inaccurate cost structures might mislead consumers into thinking a product is of lower quality if the price is unexpectedly low, or vice versa.