Examples using activity-based costing generally show that traditional costing systems ________ high-volume,simple products and ________ low-volume,complex products.
A) undercost; overcost
B) overcost; undercost
C) undercost; undercost
D) overcost; overcost

Question

Quizplus · Accepted Answer

Traditional costing systems tend to allocate overhead costs based on volume-related measures, such as labor hours or machine hours. This can lead to overcosting high-volume, simple products (because they use a lot of these volume-related measures but may not actually cause much overhead) and undercosting low-volume, complex products (because they might cause more overhead due to their complexity but don't use as many volume-related measures). Activity-based costing (ABC) aims to more accurately allocate costs based on the activities that drive costs, addressing this issue.

Examples Using Activity-Based Costing Generally Show That Traditional Costing Systems