A company produces two related products in the same plant: simple model; deluxe model. Production occurs by the batch and the setup cost per batch is large. The simple model is produced in large batches while the deluxe model is produced in small batches. Currently, the company calculates setup cost per unit by using a broad (simple) average (total setups costs/ total units produced). The use of the broad average ______ the simple product.

Select one:

a. undercosts

b. overcosts

c. use of broad average does not result in miscosting of simple product