Answer (A) is correct . ABC differs from traditional product costing because it uses multiple allocation bases and therefore allocates overhead more accurately. The result is that ABC often charges low-volume products with more overhead than a traditional system. For example, the cost of machine setup may be the same for production runs of widely varying sizes. This relationship is reflected in an ABC system that allocates setup costs on the basis of the number of setups. However, a traditional system using an allocation base such as machine hours may underallocate setup costs to low-volume products. Many companies adopting ABC have found that they have been losing money on low-volume products because costs were actually higher than originally thought.
Answer (B) is incorrect because Low-volume products are usually charged with greater unit costs under ABC.
Answer (C) is incorrect because Greater setup costs are usually charged to low-volume products under ABC.
Answer (D) is incorrect because Setup costs will not be equalized unless setup time is equal for all products.
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