A company produces two products which undergo similar processes. The company has very low overhead costs. This company should consider activity based costing rather than traditional absorption costing to ensure that its pricing decisions are more accurate.

A company which has introduced technology to reduce labour costs now incurs a greater proportion of non volume-related support activities. Activity based costing would be more appropriate than traditional absorption costing in this environment.

A company is making short term decisions based on the contribution per unit of its different products. These decisions are based upon full absorption costing data.

In traditional absorption costing, overheads are charged to a product by absorbing them at the cost driver rate for an activity based on their usage of the activity.