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A company produces two related products: Product A; Product B. The products share production resources. Currently the company allocates indirect manufacturing costs between the two

A company produces two related products: Product A; Product B. The products share production resources. Currently the company allocates indirect manufacturing costs between the two products using output units; consequently, on a per unit basis, both products have the same allocation of indirect manufacturing costs. A significant portion of the indirect manufacturing costs consists of batch-related costs such as setups. Product A is produced in large batches while Product B is produced in small batches. The current allocation method:

a.

over-costs Product B

b.

under-costs Product B

c.

none of the above

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