Question

Ted's Manufacturing makes two products, B and C. They each take 2 direct labor hours and 2 machine hours to produce. A batch of Product B, however, uses twice the number of machine set-ups and requires 3 times as many materials requisitions as does Product C. Which of the following is most likely true?
a. The product cost of Product B will be higher under ABC than under traditional costing.b. The product cost of Product C will be higher under ABC costing than under traditional costingc. Traditional costing assigns a product cost that is too low to Product C.d. Traditional costing assigns a product cost that is too high to Product B.

Answer 1

Answer:

a.

Explanation:

Based on the scenario being described within the question it can be said that the statement that is most likely true is that the product cost of product B will be higher under ABC than under traditional costing. This is because Activity-based costing (ABC) bases their overhead costs on the actual consumption by each while traditional costs  overhead is applied based on the amount of machine hours consumed. Therefore since product B is characterized as having lots of consumption then it's product cost will be higher under ABC costing.