Question

All of the following choices exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system, except:

A. Budgeted capacity utilization.
B. Actual capacity utilization.
C. Theoretical capacity.
D. Practical capacity.
E. Normal capacity.

Answer 1

The correct choice that does not exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system is Theoretical capacity.

Step-by-step explanation:

The correct choice that does not exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system is C. Theoretical capacity.

The other choices, A. Budgeted capacity utilization, B. Actual capacity utilization, D. Practical capacity, and E. Normal capacity, are all legitimate options for defining the denominator volume in a standard cost system.

Choosing the appropriate denominator volume is important because it determines how fixed overhead costs are allocated to products or services. It allows businesses to calculate the overhead rate and assign fixed overhead costs to products based on factors such as expected usage, actual usage, or planned capacity.