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Discrepancies in costs between traditional and activity-based costing methods are not uncommon. Activity-based costing systems indicate that significant resources are consumed by low-volume products and complex production operations. Studies have shown that, after the implementation of activity-based costing, the costs of high-volume, standard products have often been too high and, using ABC, have declined anywhere from 10 to 30 percent. Low-volume, complex specialty product costs tend to increase from 100 to 500 percent, although in some cases these costs have risen by 1,000 to 5,000 percent!
Thus, activity-based costing typically shifts a substantial amount of overhead cost from standard, high-volume products to premium special-order, low-volume products. The ABC costs of moderate products and services (those that are neither extremely simple nor complex, nor produced in extremely low or high volumes) tend to remain approximately the same as the costs calculated using traditional costing methods.
Although the preceding discussion addresses costs normally considered product costs, activity-based costing is just as applicable to service department costs. Many companies use an activity-based costing system to allocate corporate overhead costs to their revenue-producing units based on the number of reports, documents, customers, or other reasonable measures of activity.
