Asked by Lorie Jackson on Jun 25, 2024
Verified
When a company changes from a traditional costing system to an activity-based costing system, costs will ordinarily shift from high-volume products to low-volume products when the activity-based costing system includes batch-level or product-level costs.
Traditional Costing System
A costing methodology that assigns costs to products based on direct costs like materials and labor, and allocates overhead costs based on a predetermined rate.
Activity-Based Costing System
An accounting method that assigns costs to products based on the activities they require for production.
Batch-Level Costs
Costs that are incurred for every batch produced, regardless of the size of the batch, such as setup costs or inspection costs.
- Recognize the impact of switching from traditional costing to activity-based costing on product costs.
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Learning Objectives
- Recognize the impact of switching from traditional costing to activity-based costing on product costs.
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