The proper treatment of the cost of unused capacity, as identified through the use of an activity-based budgeting (ABB) system, is to charge the amount to:

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The proper treatment of the cost of unused capacity identified by an ABB system is to charge the amount to the product line, department, or manager who made the decision to acquire the unused capacity. This is because the decision to acquire unused capacity was made in anticipation of future demand that did not materialize, and therefore it is reasonable to hold those responsible accountable for the cost. Charging customers would be difficult and potentially damaging to customer relationships, and placing the cost in a deferred asset or credit account would misrepresent the true cost of production for the period. Charging all products produced in the area would also be inaccurate because not all products benefit equally from the unused capacity.

The Proper Treatment of the Cost of Unused Capacity, as Identified