Magnolia Industries combines all manufacturing overhead into a single cost pool and allocates this overhead to products by using machine hours. Activity-based costing would likely show that with Magnolia’s current procedures that:___________.

A. all of the company's products are undercosted.
B. the company's high-volume products are undercosted.
C. all of the company's products are overcosted.
D. the company's high-volume products are overcosted.
E. the company's low-volume products are overcosted.

Activity-based costing (ABC) assigns costs to each activity that is involved in the production process. Then it assigns manufacturing overhead costs to the products depending on which activities are required to manufacture them.

When overhead costs are assigned based on machine hours only, then low volume products will be undercosted while high volume products will be overcosted. It is true that high volume products use more machine hours, but it doesn't mean that it will use all the factory's resources more. E.g. low volume products might actually be kept on a warehouse for more time than high volume products.

Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. ... Resources are assigned to activities, and activities to cost objects based on consumption estimates.