The costs of unused capacity are highlighted when ________.
A) actual usage based allocations are used
B) budgeted usage allocations are used
C) practical capacity-based allocations are used
D) the dual-rate cost-allocation method allocates fixed costs based on actual usage

Question

Quizplus · Accepted Answer

Unused capacity is highlighted when practical capacity-based allocations are used. Practical capacity is the maximum output that a firm can sustain given its product mix, workforce, and equipment. Allocating fixed costs based on practical capacity shows the amount of costs incurred for unused capacity, revealing the cost of unused capacity. Actual usage-based allocations and the dual-rate cost-allocation method based on actual usage do not reveal the cost of unused capacity. Budgeted usage allocations can show the cost of unused capacity, but only if the budgeted usage is based on practical capacity, not expected or forecasted usage.

The Costs of Unused Capacity Are Highlighted When ________