When a Company Implements Activity-Based Costing, Overhead Cost Often Shifts

question 17

True/False

When a company implements activity-based costing, overhead cost often shifts from high-volume products to low-volume products, with a higher unit cost resulting for the low-volume products.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to products based on a certain activity (e.g., machine hours).

Variable Manufacturing Overhead

Costs of manufacturing that fluctuate with the level of production output, such as utility costs directly tied to machine operation.

Machine-Hours

A gauge for the level of production or activity, calculated through the duration machines are in use.

Manufacturing Overhead

Indirect costs related to manufacturing that are not directly tied to specific units produced, such as maintenance and utilities.