A fixed overhead rate based on ________ highlights for management attention the cost of unutilized capacity.
A)budgeted production
B)practical capacity
C)utilized capacity
D)actual production

Question

Quizplus · Accepted Answer

Practical capacity is the maximum amount of output that can be produced with the available resources. Using practical capacity as the basis for the fixed overhead rate highlights the cost of unutilized capacity, which can alert management to take actions such as reducing production or finding ways to utilize the excess capacity. Budgeted production, actual production, and utilized capacity do not necessarily consider the maximum potential output that the available resources can produce, and therefore may not accurately reflect the cost of unutilized capacity.

A Fixed Overhead Rate Based on ________ Highlights for Management