In a cost system that doe not consider the cost hierarchy unit-level measures can distort product costing because the demand for overhead resources may be driven by batch-level or product-sustaining activities.

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When a cost system does not consider the cost hierarchy, it can lead to misleading product costing because the overhead costs can be driven by activities other than unit-level activities. This can result in products appearing more or less expensive than they actually are, which can impact decision-making and profitability. Therefore, it is important to consider the cost hierarchy and allocate costs accordingly.

In a Cost System That Doe Not Consider the Cost