Theoretical capacity is rarely used to calculate the budgeted fixed manufacturing cost per case because it departs significantly from the real capacity available to a company.

Question

Quizplus · Accepted Answer

Theoretical capacity is based on ideal operating conditions and assumes no downtime or inefficiencies. In reality, companies may experience downtime or other operational challenges that reduce their actual capacity. Therefore, it is more appropriate to use practical capacity when calculating the budgeted fixed manufacturing cost per case.

Theoretical Capacity Is Rarely Used to Calculate the Budgeted Fixed