Question

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of high volume products typically: True or False

Answer 1

Answer:

False

Explanation:

Missing...."increase whereas, the unit product costs of low volume products typically decrease"

When a company shifts from traditional cost system to activity-based costing system, the unit product costs of low volume products typically increase and the unit product costs of high volume products typically decrease.  Under Activity Based Costing system, the resources are allocated to the production activities and unit costs are determined in proportion to the production activities. The cost consideration on the basis of units, batches, products, etc. will increase the per unit costs of low volume products as the Activity Based Costing system allocates costs based on multiple cost drivers. When production volume increases, the per unit costs will be reduced.