[harris016]

Can somebody help me explain this conceptual question about ABC costing.

Becker says that there will be greater unit costs for low volume products compared to a traditional costing system.

Wouldn’t ABC produce the opposite? Maybe I am missing the boat on the idea of ABC but my thought is that ABC allocates cost in proportion to activity(volume), Therefore a lower volume would produce a lower unit costs. Obviously my thinking is incorrect. Can somebody please explain why I am wrong.

[mla1169]

Lower volume means higher unit costs. Let's say you lease a machine that costs 1000/month. If you produce 1000 widgets, the cost is $1/widget. If you produce 2 widgets, the cost is $500/widget.

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[harris016]

ok that makes sense assuming by unit cost they mean fixed cost?

[mla1169]

The variable costs to some extent change with the number of units produced. But the combination of fixed and variable will usually be higher per unit with less units produced. The total cost (not the per unit cost) will increase as more units are produced.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Anonymous]

Variable cost per unit should remain unchanged as production changes. It's total variable costs that changes with production.

[Author]

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