Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 16

What are the justifications for using practical capacity as the denominator volume when calculating the fixed overhead application rate?

Step 1 of 2

Cost Variance and Capacity Management:

Cost variance (CV), otherwise called spending fluctuation, is the distinction between the real expense and the planned expense, or what you expected to spend versus what you really spent.

Capacity management refers to the demonstration of guaranteeing a business amplifies its possible exercises and creation yield—consistently, under all conditions. The limit of a business quantifies how much organizations can accomplish, produce, or sell inside a given time-span.