In an activity-based costing system, the greater the level of detail the company wants to collect, the greater the chance of misclassifying some costs and activities.

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The more detailed the data collected, the higher the chance that certain costs or activities may be incorrectly classified or allocated to the wrong cost object. This can happen due to human error or ambiguity in defining certain activities or costs. Therefore, companies must strike a balance between the level of detail needed for decision-making and the potential for misclassification.

In an Activity-Based Costing System, the Greater the Level of Detail