Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations.

Question

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Activity-based costing (ABC) is an effective cost allocation method for companies operating in a highly automated environment that produce many different products with varying levels of production. ABC assigns the costs of each activity in the production process to the specific products that use those activities, resulting in more accurate cost allocation than traditional methods like direct labor or machine hours. By using activity-based cost drivers, companies can better understand the actual costs of producing each product, which can help them make more informed decisions about pricing, product mix, and process improvements.

Companies Operating in a Highly Automated Environment That Produce Many