ABC

In ABC, non-production overheads are typically not absorbed into each unit of product in the same way as production costs.
ABC focuses on identifying the activities that drive costs and assigns overheads based on those activities.
This means that while some non-production overheads may be allocated to products, they are generally treated separately and not absorbed uniformly across all units.
Read the question to see what it states.

In Activity-Based Costing the focus is primarily on absorbing overheads based on the activities that drive those costs. So as I said previously non -production costs are generally not relevant for costing purposes, as they are often treated as period costs rather than being absorbed into product costs.

In real life, the implementation of ABC allows for a more accurate allocation of overheads to products, especially when there are multiple products with varying overhead requirements. This method can lead to better decision-making and potential cost savings, as it identifies the specific activities that incur costs and assigns overheads accordingly.

If overheads are small or if all products use similar amounts of overhead, the difference between using ABC and a lump sum basis may not be significant. However, when overheads represent a larger proportion of total costs, ABC becomes more beneficial for accurately reflecting the cost per unit of each product.