COST OF FREE CAPACITY

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.