If Fowler Corporation changes to activity-based costing (ABC), this method normally results in:
A)Equalizing setup costs for all product lines.
B)Substantially lower unit costs for low-volume products than is reported by traditional product costing.
C)Decreased setup costs being charged to low-volume products.
D)Substantially greater unit costs for low-volume products than are reported by traditional product costing.
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

Activity-based costing (ABC) is a costing method that assigns overhead costs to products or services based on the activities that are used in their production or provision. Under ABC, the focus is on identifying and measuring the costs of the activities that are used to create a product, rather than the product itself. As a result, low-volume products may end up with substantially greater unit costs than what is reported by traditional product costing, which allocates overhead costs based on direct labor or machine hours. This is because low-volume products may require unique or specialized activities that have higher costs associated with them.

If Fowler Corporation Changes to Activity-Based Costing (ABC), This Method