Final answer:
In activity based costing, products are charged for based on their capacity use, which involves allocating costs based on the resources and activities used in production.
Step-by-step explanation:
In activity based costing, products are charged for based on their capacity use. This means that the costs of producing a product are allocated based on the resources and activities used in its production.
For example, if a product requires more machine time or labor compared to other products, it will incur higher costs in activity based costing. This is because the product is using more capacity in terms of resources and activities.
By accurately allocating costs based on capacity use, activity based costing provides a more precise understanding of the actual costs of producing each product.