When a company changes from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high-volume products typically increase whereas the unit product costs of low-volume products typically decrease.

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This is because traditional cost systems tend to allocate overhead costs to all products based on the volume of direct labor-hours. High-volume products generally require more direct labor-hours than low-volume products, so they would be charged with a higher proportion of overhead costs. However, activity-based costing systems identify and allocate overhead costs based on the specific activities and resources required to produce each product, which can result in more accurate cost allocations but can also shift costs away from high-volume products and towards low-volume products.

When a Company Changes from a Traditional Cost System in Which