Why do overhead costs often shift from high-volume products to low-volume products when a company switches from a conventional c

Question

Vanyuwa [196]

2 years ago

9

Why do overhead costs often shift from high-volume products to low-volume products when a company switches from a conventional c

osting method to activity-based costing

Business

1 answer:

sashaice [31] · Answer 1 · 2022-10-04T23:34:09+03:00

Answer:

When a company is using conventional costing methods, the costs are allocated based on volume so those products with a high volume will get a higher share of the costs.

When Activity-based costing is used however, costs are assigned more accurately which will lead to the actual products that are causing the costs incurring them instead of those high-volume products so it will appear as though overhead costs have shifted from high-volume products to low-volume products.