Computing and Library Services - delivering an inspiring information environment

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.

[img] PDF
Download (141kB)


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.

▼ Jump to Download Statistics
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: Huddersfield Business School
Huddersfield Business School > Financial Ethics and Governance Research Group
Related URLs:
References: Alnestig, P. and Segerstedt, A. (1996), “Product Costing in Ten Swedish Manufacturing Companies”, International Journal of Production Economics, Vol. 46-47, pp. 441-457. Brierley, J.A., Cowton, C.J. and Drury, C. (2001), “Research into Product Costing Practice: A European Perspective”, European Accounting Review, 10 (2), pp. 215-256. Burns, J., Ezzamel, M. and Scapens, R. (2003), The Challenge of Management Accounting Change, Elsevier/CIMA, Oxford. Burns, J. and Scapens, R.W. (2000), “Conceptualizing Management Accounting Change: An Institutional Framework”, Management Accounting Research, 11(1), pp. 3-25. Chiu, J. and Lee, Y. (1980), “A Survey of Current Practice in Overhead Accounting and Analysis”, in Whittington, O.R. (ed.), Proceedings of the 1980 Western Region Meeting of the American Accounting Association. Clarke, P.J. (1992), “Management Accounting Practices in Irish Manufacturing Businesses: A Pilot Study”, Proceedings of the Annual Conference 1992, The Irish Accounting and Finance Association, pp. 17-34. Cooper, R. and Kaplan, R.S. (1991), The Design of Cost Management Systems: Text, Cases and Readings, Englewood Cliffs, NJ, Prentice Hall. Cooper, R. and Kaplan, R.S. (1992), “Activity-based Systems: Measuring the Costs of Resource Usage”, Accounting Horizons, 6 (1), pp. 1-13. DeBruine, M. and Sopariwala, P.R. (1994), “The Use of Practical Capacity for Better Management Decisions”, Journal of Cost Management, 8 (1), pp. 25-31. Dilton-Hill, K.G. and Glad, E. (1994), “Managing Capacity”, Journal of Cost Management, 8 (1), pp. 32-39. Drury, C. (2004), Management and Cost Accounting, 6th edition, Thomson Publishing, London. Drury, C., Braund, S., Osborne, P. and Tayles, M. (1993), A Survey of Management Accounting Practices in UK Manufacturing Companies, Chartered Association of Certified Accountants, London. Drury, C. and Tayles, M. (1994), “Product Costing in UK Manufacturing Organizations”, European Accounting Review, 3 (3), pp. 443-469. Drury, C. and Tayles, M. (1995), “Issues Arising from Surveys of Management Accounting Practice”, Management Accounting Research, 6 (3) pp. 267-280. Hopwood, A.G. (1983), “On Trying to Study Accounting in the Contexts in which it Operates”, Accounting, Organizations and Society, 8 (3) pp. 287-306. Horngren, C.T., Bhimani, A., Dater, S.M. and Foster, G. (2002), Management and Cost Accounting, 2nd edition, Financial Times/Prentice Hall, Harlow, Essex. Lamminmaki, D. and Drury, C. (2001), “A Comparison of New Zealand and British Product Costing Practices”, International Journal of Accounting, 36 (3), pp. 329-347. Maguire, W. and Heath, D. (1997), “Capacity Management for Continuous Improvement”, Journal of Cost Management, 11 (1), pp. 26-31. McNair, C.J. (1994), “The Hidden Costs of Capacity”, Journal of Cost Management, 8 (1), pp. 12-24. Sopariwala, P.R. (1998), “Using Practical Capacity for Determining Fixed Overhead Rates”, Journal of Cost Management, 12 (5), pp. 34-40. Sopariwala, P.R. (1999), “Measurement of Theoretical Capacity a First Step to Determining Practical Capacity”, Journal of Cost Management, 13 (4), pp. 35-40. Strauss, A. and Corbin, J. (1998), Basics of Qualitative Research: Grounded Theory Procedures and Techniques, 2nd edition, Sage, Thousand Oaks, CA.
Depositing User: Briony Heyhoe
Date Deposited: 15 May 2008 11:08
Last Modified: 28 Aug 2021 23:25


Downloads per month over past year

Repository Staff Only: item control page

View Item View Item

University of Huddersfield, Queensgate, Huddersfield, HD1 3DH Copyright and Disclaimer All rights reserved ©