The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher per unit allocated costs, fewer units might be sold. With fewer unit sales and no reduction in overhead costs, the remaining products will be assigned greater per unit overhead costs. If selling prices are increased to cover these still higher unit costs, there could be a further decline in sales.
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For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
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