What would one expect to occur when cross subsidies are eliminated with the use of activity-based costing (ABC)?
A) That lower-volume products pick up more of their fair share of overhead costs.
B) That higher-volume products pick up more of their fair share of overhead costs.
C) That lower-volume products will be determined as being unprofitable.
D) That higher-volume products will be determined as being unprofitable.

Question

Quizplus · Accepted Answer

Cross subsidies occur when higher-volume products subsidize the production of lower-volume products. With the use of activity-based costing, overhead costs are allocated more accurately to the products that consume them. As a result, lower-volume products will pick up more of their fair share of overhead costs, leading to the elimination of cross subsidies.

What Would One Expect to Occur When Cross Subsidies Are