Question

When Slick Heating Company switched to an activity based costing system, it realized that it was allocating a much lower percentage of factory overhead to a product line that the marketing department was trying to push. The product line may contain which type of products?

Answer 1

low volume and complex in nature

Step-by-step explanation:

Traditional costing methods tend to over allocate costs to high volume products that generally require a lot of machine hours. When activity based costing (ABC) systems replace traditional costing methods this error is usually corrected since ABC costing is much more accurate and allocates overhead costs more precisely.

Allocated costs to high volume products tend to decrease while allocated costs to low volume and complex products tend to increase a lot. For example, storage costs are usually allocated to high volume products but if you consider how frequently this products are sold, then you you might discover that low volume products with a low sales frequency require more storage costs.