Assume that facility costs are $350,000 per year for a plant occupying 20,000 square feet.The cost per square foot is $17.50.A value stream occupying 10,000 square feet would be assigned a cost of $175,000.If the value-stream manager figures out how to do the same tasks with 5,000 square feet, the cost would be reduced to $87,500.Any unabsorbed facility cost would be:

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The unabsorbed facility cost, which arises when the actual space used is less than the space allocated, would typically be treated as an overhead and deducted from revenue as a separate item in financial accounting. This approach helps in accurately reflecting the cost of unused capacity.

Assume That Facility Costs Are $350,000 Per Year for a Plant