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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: Huddersfield Business School
Huddersfield Business School > Financial Ethics and Governance Research Group
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Depositing User: Briony Heyhoe
Date Deposited: 15 May 2008 11:08
Last Modified: 29 Mar 2018 08:46
URI: http://eprints.hud.ac.uk/id/eprint/722

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