[lindjlny]

Question:

The use of Activity Bases Costing normally results in?

CorrectAnswer:

Substantially greater unit costs for low-volume products than is reported by traditional cost accounting.

How is this if a product is produced in low-volumes? Isn’t it consuming less resources?

[Anonymous]

Just taking a stab at it since I think it relates to managerial accounting. The answer makes sense to me because low volume or activities would mean that you can't spread your overhead, direct material, and indirect material cost as much as compared to high volume, therefore the unit cost would be greater. Hope that makes sense lol. Anyone is welcome to correct me.

[Keely]

I had this question in Becker, and the way I took the answer was in traditional cost accounting you are applying OH solely based on volume, so low volume products will naturally not absorb as much overhead as high volume products. In ABC, you're allocating OH based on a bunch of different things. When you use different cost drivers, it typically results in higher OH costs for products that would otherwise receive applied OH only based on volume. There's an ABC example in the book, if you are using Becker that explains it well. Hope that helps a little.

BEC: (4/2012) 88
AUD: (5/2012) 91
REG: (8/2012) 82
FAR: (1/2013) 78 🙂

VA CPA #42010

[SoCalCPA]

Definitely agree with Keely above, from what I understand.

B - (4/2012)
A - (5/2012)
R - (1/2012) Done!
F - (10/2011) Done!

[lindjlny]

I understand it know. Thanks to all

[Author]

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