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ABC: Why do manufacturing overhead costs shift from high to

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When activity based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products? What type of costs should not be assigned to products in an ABC system?

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Solution Summary

Your tutorial is 342 words and includes an example of how low-volume product costs increase under activity based costing (ABC) and why fixed costs should not be assigned to products under ABC costing systems.

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Activity based costing (ABC) assigns overhead to products based on the resources they are consuming. So, low-volume products have to absorb all the set-up and clean-up of the process across a lower number of units versus high-volume products.

Example:
You have two batches that need to be baked:
50 pounds of specialty coffee
5,000 pounds of generic coffee
The baking costs are $100 per hour. The specialty coffee costs per ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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