The correct answer is: C. under allocated indirect cost.
An indirect cost is a cost that cannot be easily attributed to a specific product or service. Indirect costs are often allocated to products or services based on a predetermined allocation base, such as direct labor hours or machine hours.
If the allocated amount of indirect cost is less than the actual amount incurred, then the indirect cost is said to be under allocated. This can happen if the allocation base is not accurate or if the actual amount of indirect cost is higher than expected.
Under allocated indirect cost can have a number of negative consequences. For example, it can lead to inaccurate product costing, which can in turn lead to incorrect pricing decisions. It can also lead to a decrease in profitability, as the company will not be able to recover all of its costs.
There are a number of things that companies can do to avoid under allocated indirect cost. One is to carefully select an allocation base that is closely correlated with the costs being allocated. Another is to regularly review the actual amount of indirect cost and make adjustments to the allocation base as needed.
Finally, companies can also use a variety of cost-containment measures to reduce the amount of indirect cost they incur. These measures can include things like negotiating better prices with suppliers, improving efficiency, and reducing waste.