CPA · Question 05 · Area I: Business Analysis
A company produces two products, A and B. Under its traditional costing method, the company allocates overhead based on direct labor hours. Product A is a high-volume, simple product, while Product B is a low-volume, complex product. If the company switches to Activity-Based Costing (ABC), which of the following effects is MOST likely to occur?
Answer options:
The reported cost of Product A will decrease, and the reported cost of Product B will increase.
The reported cost of Product A will increase, and the reported cost of Product B will decrease.
The total overhead costs allocated to both products will decrease.
The gross margin for Product B will likely increase.
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