Chapter 9-5 Flashcards
2 types of capacity concepts in absorption costing
- theoretical capacity
- practical capacity
the maximum output a company can produce under ideal conditions without any downtime
which type of capacity?
theoretical capacity
the maximum output a company can reallistically achieve, considering normal downtime and maintenance
which type of capacity?
practical capacity
2 types of utilization for demand persepctive
- normal capacity utilization
- master-budget capacity utilization
the average level of capacity utilization that a company expects over a period, considering typical fluctuations in demand
which type of utilization is this?
normal capacity utilization
the anticipated level of capacity utilization based on the expected demand for the upcoming budget periods
which type of utilization?
master budget capacity utilization
2 key issues in capacity decisions
- excess capacity
- insufficient capacity
leads to unused capacity costs, which are expenses incurred for maintaning capacity that is not utilized
which problem in capacity decisions is this?
excess capacity
results in unfilled customer demand, potentailly driving customers to competitors
which problem in capacity decisions is this?
insufficient capacity
the chioce of _______ affects product cost information and operating income under normal or standard costing
capacity level
4 types of alternative denominator level capacity concepts
- theoretical capacity
- practical capacity
- normal capacity utilization
- master-budget capacity utilization
represents the maximum production level without any downtime.
which of the 4 capacities?
theoretical capacity
adjusts theoretical capacity for unavoidable interruptions like maintenance and holidays
which of the 4 capacities?
practical capacity
reflects average customer demand over period (2-3) years, accounting for seasonal, cyclical, and trend factors
which of the 4 capacities
normal capacity utilization
based on expected demand for the current budget period (typically 1 year)
which of the 4 capacities?
master budget capacity utilization
both ____ and _____ capacity measure capacity levels in terms of what a plant can SUPPLY– available capacity
theoretical and practical
_____ and ______ measure capcaity levels in terms of DEMAND for the output of the plant, that is, the amount of capacity the plant expects to use based on the demand for its products
normal capacity utilization and master budget capacity utilization
