At the beginning of this article the key characteristics of capacity m
easurement and cost accounting are introduced. Capacity measurement an
d cost accounting are combined with costing method problem. When our i
nterest is in long-run pricing decisions, traditionally we should have
chosen between actual costing and normal costing methods. Costing pro
blem has been illustrated with imaginary example including normal cost
ing, actual costing and modified normal costing methods. If cost of ex
cess capacity is important, and it can be measured, the modified norma
l costing method would offer more information for a pricing decision t
han traditional methods.