Question 1 of 30
A manufacturing company is assessing the profitability of its two main product lines: Product A and Product B. Historically, the company has used a traditional costing method that allocates overhead based on direct labor hours. However, after implementing Activity-Based Costing (ABC), the management discovers that Product A requires significantly more machine setups and quality inspections than Product B. Given this new information, which of the following statements best reflects the implications of using ABC for the company\'s cost allocation?
ABC will likely reveal that Product A is less profitable than previously thought due to its higher consumption of overhead resources.
ABC will show that both products have similar profitability since they are produced using the same labor hours.
ABC will indicate that Product B is more profitable, but only because it has lower direct labor costs associated with it.
ABC will not significantly change the perceived profitability of either product line since both rely on similar production processes.

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