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A company makes and sells three products A, B and C.
The selling prices and costs of the three products, using a traditional absoprtion costing system, are shown in the table below.
The company has undertaken an analysis of overhead costs using activity-based costing (ABC).
The revised overhead costs for products A, B and C are $6, $32 and $55 respectively.
When comparing the figures obtained under the two costing methods, which of the following statements are true?
Select ALL that apply.
Suggested Answer: A, D, E
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36 comments · newest first
MA
Mari
12 months ago
Product B's profit is lower with ABC, that's a fact!
LA
Lacey
12 months ago
I disagree, ABC doesn’t always mean lower overhead costs.
OL
Olen
1 year ago
Wait, how can A be profitable under ABC but not under absorption?
ME
Melita
1 year ago
I think Product C is overpriced, totally agree with that.
AM
Amber
1 year ago
Product B definitely makes a profit under both methods.
YU
Yuonne
1 year ago
I don’t recall if ABC always results in lower overhead costs for the company. It seems like it could vary depending on the product mix.
GR
Graciela
1 year ago
I'm a bit confused about product C being overpriced. I thought cost-plus pricing was supposed to cover costs, but maybe ABC shows a different picture?
MA
Mammie
1 year ago
I remember a similar question where the most profitable product under absorption costing ended up showing a loss with ABC. I think that might apply here too.
TE
Tess
1 year ago
I think product B does make a profit under both methods, but I'm not entirely sure if the profit is actually lower with ABC. I need to double-check the numbers.
SU
Susy
1 year ago
Okay, I've got this. The key is to remember that federal law generally supersedes state law, unless the state law is more stringent. I'll go with option C.
BI
Billye
1 year ago
I'm not entirely sure about this one. The CDATA section is throwing me off a bit. I'll need to review my notes and examples to make sure I'm approaching this the right way.
BE
Becky
1 year ago
Custom Scaling sounds like the best option here. Adjusting the text size directly should make the most difference in reducing eye strain during long reading sessions.
LI
Lilli
1 year ago
Looks like the company is really going to need to re-evaluate their pricing strategies after this ABC analysis. Maybe they should hire a team of accountants who can actually do math.
NI
Nicolette
1 year ago
Product C is currently overpriced based on cost plus pricing and the selling price should be reduced.
WI
Willard
1 year ago
Product A shows a profit under ABC but had appeared loss making under traditional absorption costing.
YO
Yolando
1 year ago
Product B makes a profit under both methods, but the profit is lower using ABC.
KI
Kirk
1 year ago
Wait, so are we supposed to find the most profitable product or the one that's the least unprofitable? I feel like I need a crystal ball for this one.
SH
Shawnda
1 year ago
The product that is the most profitable under traditional absorption costing makes a loss under the ABC methodology.
DO
Dortha
1 year ago
Product A shows a profit under ABC but had appeared loss making under traditional absorption costing.
LA
Lashaun
1 year ago
Product B makes a profit under both methods, but the profit is lower using ABC.
CA
Cassie
2 years ago
Aha, so the company was overpricing Product C all this time. They should probably give their pricing team a raise for catching that.
AL
Alton
1 year ago
Definitely, it's important for companies to regularly review their costing methods to ensure accurate pricing.
TR
Truman
1 year ago
It's interesting how the profit margins can change based on the costing method used.
MA
Man
1 year ago
Yes, the pricing team did a good job catching that. Product A shows a profit under ABC but had appeared loss making under traditional absorption costing.
AN
Anthony
1 year ago
Product C is currently overpriced based on cost plus pricing and the selling price should be reduced.
CA
Carma
1 year ago
It's interesting how the costing method can change the perceived profitability of a product.
RO
Rochell
1 year ago
Product A shows a profit under ABC but had appeared loss making under traditional absorption costing.
FL
Floyd
1 year ago
Yes, the company should definitely adjust the selling price of Product C to reflect the actual costs.
SH
Shannan
1 year ago
Product C is currently overpriced based on cost plus pricing and the selling price should be reduced.
SE
Selma
2 years ago
Oh, this is tricky. I can already see that the traditional absorption costing was hiding some important cost information. Time to dive into the details!
DO
Dong
2 years ago
Hmm, looks like we need to do some careful analysis here. The revised overhead costs from ABC seem to have a significant impact on the profitability of these products.
EM
Emile
1 year ago
Product A shows a profit under ABC but had appeared loss making under traditional absorption costing.
ME
Mertie
1 year ago
Product B makes a profit under both methods, but the profit is lower using ABC.
AN
Antonette
2 years ago
I see your point, Delpha. But maybe the overhead costs allocation in ABC is affecting the profitability differently.
DE
Delpha
2 years ago
I disagree with option B. The most profitable product under traditional costing should still be profitable under ABC.
AN
Antonette
2 years ago
I think option A is true because Product B makes a profit under both methods.