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Reasons for adopting different capacity levels in the denominator of overhead rates: a research note

Cowton, Christopher J., Drury, Colin and Brierley, J. (2006) Reasons for adopting different capacity levels in the denominator of overhead rates: a research note. Journal of Applied Management Accounting Research, 4 (2). pp. 53-62.

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    Abstract

    There has been criticism of the use of
    budgeted capacity as the denominator of
    overhead rates. Prior questionnaire-based
    research has analysed which type of
    capacity is used in the denominator of
    overhead rates, but it has not assessed why
    these capacity levels are used. This paper
    uses grounded theory techniques to analyse
    50 interviews with British management
    accountants about why a particular
    capacity level is used to determine the
    denominator of overhead rates. The results
    reveal that budgeted capacity is used
    because the calculation of the denominator
    is regarded as part of the budgeting
    process. Practical capacity and normal
    capacity are used to ensure that products
    are not under or overcosted.

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    Item Type: Article
    Additional Information: 2005 Institute of Certified Management Accountants, All Rights Reserved.
    Subjects: H Social Sciences > HG Finance
    H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
    H Social Sciences > HF Commerce > HF5601 Accounting
    Schools: The Business School
    The Business School > Financial Ethics and Governance Research Group
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    References:

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    Depositing User: Briony Heyhoe
    Date Deposited: 15 May 2008 12:08
    Last Modified: 28 Jul 2010 19:23
    URI: http://eprints.hud.ac.uk/id/eprint/722

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