Final answer:
Overcosting occurs when a product that utilizes low levels of resources is allocated disproportionately high costs per unit, with the correct answer to the question being option 2) low, high. This could result in competitive disadvantages and inaccurate product pricing.
Step-by-step explanation:
Overcosting occurs when a product consumes a low level of resources but is allocated high costs per unit. The correct answer to the question would therefore be option 2) low, high. This issue is related to the allocation of indirect costs and can lead to distorted price settings and competitive disadvantages. Inaccurate cost allocation methods, like traditional costing systems that do not use activity-based costing, often result in overcosting. This can have significant strategic implications, as it might lead to wrong decision-making regarding product pricing, discontinuation, or even business strategy changes.
Cost accounting systems need to be carefully designed to reflect the actual consumption of resources by different products. Inappropriate costing can also lead to undercosting, where a product consumes a high level of resources, but is allocated low costs per unit, which is the opposite situation.