"Firms Need to Use the Capacity of the Equipment or Division

question 154

Essay

"Firms need to use the capacity of the equipment or division that is the 'bottleneck' of the manufacturing process as the denominator volume in setting the fixed overhead allocation rate.In cases where there is more than one 'bottleneck,' the denominator should be the smallest capacity among the bottleneck production processes."
Required: (a)What type of variance is related to this "denominator?" Explain.
(b)Why should a firm choose the smallest capacity "bottleneck" as the denominator in a manufacturing process?

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Definitions:

Brand Equity

The value or worth of a brand in the marketplace, largely determined by consumer perceptions, recognition, and loyalty.

Associative Learning

The process by which an individual learns the connection between two stimuli or events, often leading to the formation of habits or preferences.

Observational Learning

The process of acquiring knowledge and skills by observing and imitating the actions of others, without direct instruction.

Cognitive Transfer

The process where learning in one context enhances or influences learning and performance in another context.