Accounting Assignment Help With Capacity Cost

5.6 Capacity Cost

Since fixed cost remains fixed within a range, product cost can be minimised at the maximum possible capacity utilisation within the given range. The cost incurred because of capacity under-utilisation is termed as capacity cost.

5.7 Cost of Stores, Spares and Packaging Materials

Stores and spares used in the production process are generally considered as indirect materials. They are part of manufacturing overhead. Sometimes store and spares are linking to a particular job or product in case they are of proportionately high value. They are considered as direct material.

Cost of packaging materials forms part of selling and distribution cost. This is a variable cost as cost of packaging varies directly with the number of units finished. However this is added to cost of finished goods if they are already packaged.

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