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Hi, I can’t quite figure out what this statement means. Absorption costing underallocates oh costs to low vol products than abc.
Does it mean abt the cost pool or comparing OAR and cost/driver?
With absorption costing, it makes no difference whether products are high volume or low volume – the same cost per unit or per hour will be allocated to each product.
With ABC costs are allocated between products depending on the amount of the cost driver used. Low volume products are likely to use the same amount of the cost driver as high volume products and if so, then will end up being charged with more per unit than will high volume products.
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