Final answer:
Undercosting a particular product or service may result in lower profit margins.
Step-by-step explanation:
Undercosting a particular product or service may result in a number of negative outcomes for a business. When a company's costing system allocates too little cost to a product, the price set for that product may not cover the total costs, including the manufacturing, distribution, and selling expenses. This disconnect can lead to selling products at profit margins that are too low or even at a loss, which could be detrimental in terms of financial sustainability and may reduce business profits.
In a competitive market, undercosting may further expose the business to risks from competitors offering better or cheaper products. Incurring continuous losses can lead to loss of income for the business and potentially the workers if the financial situation results in downsizing or closure. For any given business, maintaining a strategic pricing policy that accurately reflects the costs incurred is crucial to sustain in a market where consumers have multiple alternatives.