When a Company Shifts from a Traditional Cost System in Which

question 7

True/False

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

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Definitions:

Accounts Receivable

The money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Net Sales

Net sales is the revenue a company generates from its sales of goods or services after deducting returns, allowances for damaged or missing goods, and discounts.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.

Inventory Turnover Rate

A financial metric indicating how many times a company's inventory is sold and replaced over a specific period, used to assess efficiency in managing inventory.