When actual production is below practical capacity,there will be unused-capacity cost only in the manufacturing function and not in nonmanufacturing parts like distribution function.

Question

Quizplus · Accepted Answer

Unused-capacity cost can exist in both manufacturing and nonmanufacturing functions if actual production is below practical capacity. In the distribution function, for example, there may be unused warehouse space, idle workers or underutilized transportation resources that result in unused-capacity costs.

When Actual Production Is Below Practical Capacity,there Will Be Unused-Capacity