When a company changes from a traditional costing system to an activity-based costing system, costs will ordinarily shift from high-volume products to low-volume products when the activity-based costing system includes batch-level or product-level costs.

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Under activity-based costing, costs are allocated based on the activities that drive them. This means that high-volume products that require few activities (such as machine setup or inspection) may have lower costs under activity-based costing, while low-volume products that require more complex activities may have higher costs. If the activity-based costing system includes batch-level or product-level costs, it is likely that these costs will be allocated to the products that cause them, leading to a shift in costs from high-volume to low-volume products.

When a Company Changes from a Traditional Costing System to an Activity-Based