One of the advantages of activity-based costing (ABC) over traditional methods of overhead allocation, when combined with cost-based pricing, is that ABC avoids the problem of:

Question

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Traditional methods of overhead allocation often use a single cost driver to allocate overhead costs across all products, leading to low-volume products being overpriced and high-volume products being underpriced. ABC, on the other hand, uses multiple cost drivers specific to each product, resulting in more accurate cost allocation and pricing decisions. Therefore, when combined with cost-based pricing, ABC can avoid the problem of low-volume products being underpriced.

One of the Advantages of Activity-Based Costing (ABC) Over Traditional