Final answer:
Allocated costs tend to be higher under the activity-based costing method because it includes the allocation of selling and administrative expenses, whereas traditional costing does not.
Step-by-step explanation:
The student asked why allocated costs will be higher under the activity-based costing (ABC) method than under traditional costing. The answer is that ABC allocates selling and administrative expenses, which are not typically included in traditional costing methods.
Traditional costing tends to spread overhead equally across all products, whereas ABC assigns costs to products based on the actual activities and resources they use, such as selling and administrative activities.
Hence, under ABC, more expenses may be allocated to products than under the traditional approach, which can result in higher allocated costs. This includes not just production costs, but also non-manufacturing costs like selling and administrative expenses that are relevant to the activities being performed.
Understanding the composition of total costs, which include both fixed and variable costs, is essential. Fixed costs, like rent, do not change with the level of production, whereas variable costs, such as labor, do change with production levels.
ABC is more accurate in assigning both types of costs on the basis of the actual consumption of resources by different activities and products.