Reasons for adopting different capacity levels in the denominator of overhead rates

a research note

John A. Brierley, Christopher Cowton, Colin Drury

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)53-62
Number of pages10
JournalJournal of Applied Management Accounting Research
Volume4
Issue number2
Publication statusPublished - 2006

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Budgeting
Management accountant
Criticism
Questionnaire
Grounded theory

Cite this

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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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Reasons for adopting different capacity levels in the denominator of overhead rates : a research note. / Brierley, John A. ; Cowton, Christopher; Drury, Colin.

In: Journal of Applied Management Accounting Research, Vol. 4, No. 2, 2006, p. 53-62.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Reasons for adopting different capacity levels in the denominator of overhead rates

T2 - a research note

AU - Brierley, John A.

AU - Cowton, Christopher

AU - Drury, Colin

PY - 2006

Y1 - 2006

N2 - 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.

AB - 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.

KW - Product Cost

KW - Overhead Rate

KW - Denominator Capacity

KW - Budgeted Capacity

KW - Practical Capacity

KW - Normal Capacity

M3 - Article

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SP - 53

EP - 62

JO - Journal of Applied Management Accounting Research

JF - Journal of Applied Management Accounting Research

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