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| Author: | Buchheit, S. |
| Title: | Reporting the cost of capacity |
| Journal: | Accounting, Organizations and Society
2003 : AUG, VOL. 28:6, p. 549-565 |
| Index terms: | Accounting Reporting Capacity Costs |
| Language: | eng |
| Abstract: | A recent innovation in management accounting is the practice of reporting unused capacity costs. This experimental study examines factors affecting when this practice improves decisions and when it impairs decisions. Reporting unused capacity costs uniformly leads experimental participants to cut unused capacity resources. Such cuts improve overall profitability when demand exhibits a negative trend. However, the cost savings from capacity reduction are more than offset by the increased opportunity cost of foregone demand when demand exhibits a positive trend. As such, this study suggests that explicit capacity cost reporting can be detrimental to growing companies. |
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