All the following choices exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system, except:
A) Budgeted capacity utilization.
B) Actual capacity utilization.
C) Theoretical capacity.
D) Practical capacity.
E) Normal capacity.

Question

Quizplus · Accepted Answer

Actual capacity utilization should not be used to define the denominator volume for assigning fixed overhead costs in a standard cost system because it can fluctuate widely due to factors outside the control of management, such as equipment breakdowns or unexpected changes in demand. The other options, including budgeted capacity utilization, theoretical capacity, practical capacity, and normal capacity, are all valid choices for defining the denominator volume.

All the Following Choices Exist for Defining the Denominator Volume