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Subject Topic: ABC Costing - unit costs (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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divyagovil1
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Posted: 21 May 2009 at 14:10 | IP Logged  

The use of activity-based costing normally results in:

a. Substantially greater unit costs for low-volume products than is reported by traditional product costing.

b. Substantially lower unit costs for low-volume products than is reported by traditional product costing.

c. Decreased set-up costs being charged to low-volume products.

d. Equalizing set-up costs for all product lines.

Explanation Choice "a" is correct. The use of activity-based costing normally results in substantially greater unit costs for low- volume products than is reported by traditional product costing.

Can someone pls shed more light on the solution? Thanks!



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Soon2BeCPA
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Posted: 21 May 2009 at 14:18 | IP Logged  

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divyagovil1
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Posted: 21 May 2009 at 14:40 | IP Logged  

That makes sense... I should I have got it earlier ! In traditional costing approach, we are allocating OH based on a single cost driver... ABC is more detailed, multiple cost drivers.

Thanks, Soon2BeCPA !



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Soon2BeCPA
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WORKnSTUDY
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Posted: 21 May 2009 at 17:26 | IP Logged  

Soon2BeCPA -

Can you explain what OH costs are included in ABC that are not included in Standard Costing?  I'm under the impression that standard costing spreads the OH evenly in relative terms (same impact for each product).  ABC spreads based on "rational" standards. 

In other words, isn't the total OH amount the same, just differently allocated?  Thanks,  

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