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I'd like to know your point of view. Production Line 1 produces products A&B. It has 20% idle capacity as a result of efficiency improvements.

How should the costs associated with the idle capacity be assigned? A.) to product A&B based on volume, sales price, product cost or some other driver. B.) directly to the income statement as idle capacity C.) to sales and marketing since they are responsible for generating demand D.) to plant overhead and allocated to all products the plant produces (Question from IMA's Inside Talk Webinar: Conceptual Framework for Managerial Costing)

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Question added by Ednalyn Banuelos, CMA , Projects Accountant , Grade Ref., LLC
Date Posted: 2014/11/22
Sara Naeem
by Sara Naeem , Trainee Finance officer , Wah Brass Mill

B) Directly to the income statement as idle capacity 

Ednalyn Banuelos, CMA
by Ednalyn Banuelos, CMA , Projects Accountant , Grade Ref., LLC

Thank you for finding time to answer, my colleagues! The best answer is letter C. Since sales and marketing people are those that are incharge of promoting the products and getting orders from the customers to make advantage of the production's idle capacity.

Urslan Ali
by Urslan Ali , Supervisor Finance, Logistics , Sevens LLC - Al Naboodah Group

I think answer is D

because idle capacity is due to efficiency improvement and not due to decrease in demand,

Syed Hyder
by Syed Hyder , Assistant Manager–Commercial Finance (Inventory & Payables) , Daraz.pk (Ali Baba Venture)

C

Altaf Bhoon ACA
by Altaf Bhoon ACA , Assistant Finance Manager , Atlantic Maritime Group FZE

Option C

Malik Khalid Mahmood
by Malik Khalid Mahmood , Regional Finance Manager , Leosons International FZ LLC

Directly to income statement, as its a administrative loss

Qaiser Rehman Qaiser Rehman
by Qaiser Rehman Qaiser Rehman , Accounts Assistant , Asia Ghee Mills (Pvt) Limited Bahawalpur

C is the Right Answer.

Because Idle capacity will be charged to sales and marketing department that are responsible for creation of demand in the market.

 

Deleted user
by Deleted user

C - Is the answer

abram william
by abram william , treasury banking accountant , SMG engineering automotive company

C.) to sales and marketing since they are responsible for generating demand 

Wasif Ali
by Wasif Ali , Stock & Credit Controller , Petrogas Company Ltd.

OPtion B. Charge directly to income statement

Ezzidin Ibrahim
by Ezzidin Ibrahim , Financial Controller , Karim Food Industries

D.) to plant overhead and allocated to all products the plant produces

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