A company uses a single plant-wide overhead absorption rate (OAR) based on direct labor hours. If the manufacturing environment transitions into a highly automated, machine-intensive system while the OAR remains unchanged, what distortion is most likely to occur?

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Economics · Cost Accounting

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Low-volume, complex and customized products will be under-costed.

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Answer 1

Direct material costs will automatically experience downward adjustment errors.

Answer 2

Both low-volume and high-volume products will maintain accurate structural costing.

Answer 3

Low-volume, complex and customized products will be under-costed.

Answer 4

High-volume, simple products will be significantly over-costed.

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