The major challenge when planning fixed overhead is ________.
A) calculating total costs
B) calculating the cost-allocation rate
C) choosing the appropriate level of capacity
D) choosing the appropriate planning period

Question

Quizplus · Accepted Answer

The major challenge when planning fixed overhead is choosing the appropriate level of capacity. This is because the level of capacity chosen affects the cost-allocation rate, as well as total costs. The cost-allocation rate is calculated by dividing the total fixed overhead by the chosen level of capacity, so the level of capacity chosen must be appropriate to ensure that the cost-allocation rate accurately reflects the fixed overhead costs that will be incurred. Additionally, the appropriate level of capacity must be chosen to ensure that total costs are not underestimated or overestimated. Therefore, choosing the appropriate level of capacity is the most important factor when planning fixed overhead.

The Major Challenge When Planning Fixed Overhead Is ________