BUSI 3008 Lecture Notes - Lecture 4: Behaviorism, Industrial Engineering, Cost Driver
6 Dec 2016
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Chapter 9 denominator choices & absorption v. variable costing. Need to choose the allocation base (dl hours, dl cost, machine hours, or number of units used) to use as the denominator. We use production volumes or different measures of capacity for the denominator. Theoretical capacity: the amount of output theoretically possible, given no delays or interruptions in productions, what a company could theoretically produce. Practical capacity: amount of output practically possible after taking into account idle time for maintenance, inspections, holidays, etc, lower than the theoretical capacity because it takes into account other costs and delays. Normal capacity: the average use of capacity over time; the level of output that will meet average customer demand, complies with aspe & ifrs for valuing inventory, provides no meaningful feedback on performance. Is an average over several years, but performance is assessed more frequently.
