Top management at Gifford manufacturing are planning capacity levels and how to assign capacity costs for an upcoming period. Which of the following factors should be considered while developing this plan so that proper control can be achieved?
A) The IRS tax implications of such decisions
B) The level of uncertainty of expected costs and demand
C) The GAAP rules requiring absorption costing
D) The requirements of SFAS 151

Question

Quizplus · Accepted Answer

Capacity planning involves predicting future demand and costs, which are uncertain factors. Considering the level of uncertainty in expected costs and demand can help the company to avoid overcapacity or undercapacity situations. This can lead to better control over cost allocation and improve the overall efficiency of the manufacturing process. Factors like tax implications, GAAP rules, and SFAS 151 may also be relevant, but they are not as critical as considering uncertainties in demand and costs.

Top Management at Gifford Manufacturing Are Planning Capacity Levels and How