In which situation is activity based costing most likely to produce product costs that are very different from those under traditional absorption costing?

Correct answer: A) Overheads are a large proportion of total cost, and products differ greatly in their use of support activities such as set-ups

Explanation

ABC gives very different results when overheads are significant and are driven by factors other than volume, for example set-ups, orders or inspections. Products that use these activities differently, such as small-batch versus large-batch products, then receive very different overhead charges. With a single product or volume-driven overheads, both methods give similar results.