Budget Capacity Levels Assignment Help

Budget Capacity Levels Assignment Help The four different levels of capacities which are considered while setting the budgeted fixed costs for manufacturing are describe by our Assignment Help Sydney experts

Theoretical capacity: It is based on the criteria that the production will be done at maximum efficiency every

time. This concept eliminates the fact that machinery requires maintenance and there are periods of shutdown and interruptions due to assembly line downtowns.

Pros: The ideal goal is represented by the company through this concept which can be aspired.

Cons: It is a hypothetical concept which in practically unachievable and impossible in real world (Boyd, 2013).

Practical capacity: Under this capacity the theoretical capacity is reduced by acknowledging the interruptions which cannot be avoided such as shutting down of plant on holidays and its timely maintenance.

Pros: It gives an estimation of production which is practically possible to achieve.

Cons: Higher risks of accidents to meet the estimated production. These two measures the level of capacity in terms of supply that a plant can avail while the normal and budget capacity measures the level of capacity in terms output demand of the plant.

Normal capacity: This capacity level satisfies the demand of customers taken as average over a time period including cyclical, seasonal and factors of trends.

Pros: It gives an estimation of demand over a forecasted time period say three or four years.

Cons: The future trends can vary due to any uncertainties and capacity level can mismatch.

Master budget

capacity: It is the capacity level that is expected by managers for a time period of one year.

Pros: Managers are more obliged to meet the expect levels under master budget.

Cons: Often the expected levels are not met due to shorter time period. Choosing the practical and theoretical capacity improves profitability as the expected levels are high as compare to normal and budgeted capacity. Oppositely if the production is more than it increases cost of inventory resulting in reduced profits (Hart, et al., 2012).  References Boyd, K. (2013) Cost Accounting For Dummies. USA: John Wiley & Sons Hart, J., Wilson, C. and Fergus, C. (2012) Management Accounting: Principles & Applications. Australia: Pearson Higher Education