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which of the alternative capacity measures makes allowances for possible cycles in t 641261

(Capacity measures) For 2010, Milltown Iron Manufacturing has estimated its production capacities as follows:

Theoretical capacity

400,000 units

Practical capacity

300,000 units

Normal capacity

260,000 units

Expected capacity

200,000 units

Milltown is trying to choose which capacity measure it should use to develop its pre determined OH rates for 2010.

a. Why does the choice of capacity measure affect the amount of under or overap plied overhead the firm will have at the end of 2010?

b. Which capacity measure choice would likely result in the least amount of under or overapplied overhead?

c. Which of the alternative capacity measures makes allowances for possible cycles in the industry?

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