Accounting · Cost Accounting

Which of the following is the most likely reason for an organisation to transition from a traditional absorption costing system to Activity-Based Costing (ABC)?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1The company's production volume is declining rapidly
2Overhead costs are a high proportion of total product costs, and the product range is diverse✓
3Direct labour costs represent a significant proportion of total product costs
4The company sells a single, high-volume, homogenous product

Correct answer

Overhead costs are a high proportion of total product costs, and the product range is diverse

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