When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity, the units that are produced must shoulder the costs of unused capacity.

Question

Quizplus · Accepted Answer

This statement is true. When fixed costs of capacity are spread over the estimated activity level, any unused capacity is still included in the calculation of the overhead rate. This means that the units produced will be charged for a portion of the fixed costs, even if the actual production levels do not require the use of all the available capacity.

When the Fixed Costs of Capacity Are Spread Over the Estimated