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jiriyu · Nov 23, 2009, 12:38 AM

In manufacturing, capacity represents the work that could be performed if all the resources of the factory are used to their full potential. For example, running three shifts a day, a factory should be able to produce a given output per year. A management accountant could then compute unit cost using “practical capacity” or ”actual utilization” as a base. In a manufacturing setting, the argument in favor of using practical capacity as a
Denominator to compute unit costs is that it eliminates the effect of volume differences on
Cost computation, and that it suggests what a product should cost if capacity is fully utilized.
On the other hand, practical capacity can be arbitrary, masks the actual costs, and may be
Difficult for non-accountants to understand.

What is the relevance of capacity considerations in a medical practice? To benchmark against other practices, should FMMG compute the cost of each unit of service delivered on a capacity base or an actual volume base? When would capacity or actual volume bases be most appropriate in medical practices?

Clough · Nov 23, 2009, 01:35 AM

Hi, jiriyu!

If you post what you think might be the answers to the questions that you're asking, you'll be much more likely to have someone come along, who is knoledgeable, to work with you as to how what you've posted is correct or incorrect.

This isn't a site where people just post homework questions and expect to get the answers. If the answers were just simply given to the students without the students knowing how to arrive at the answers, how would that be helping the students to learn how to come up with the answers themselves?

Thanks!