Identifying Unused Capacity for Engineered and Discretionary Overhead Costs

Management accounting measures, analyses and reports financial and non-financial information helping managers fulfill the long term organizational objectives. Our critical analysis of identifying unused capacity for engineered and discretionary overhead cost homework help throws light on certain aspects of cost accounting.

The write-up is designed to help students understand the concept of discretionary and engineered costs and unused capacity of such factors.

Discretionary costs

  • Certain activities are beneficial for the organization, however, we cannot measure them in a precise manner before and after the completion of the activity.
  • Discretionary costs are the costs of inputs required to perform the said activities.
  • There is no pre-defined cause and effect relationship between cost and benefit of the project.
  • Management decides the degree of input based on previous experience or intuition.
  • Support activities like advertising, sales promotion, employee hiring, research and development generates discretionary costs.
  • The value added services provided by these activities are intangible, immeasurable yet benefits either external or internal customers.
  • Discretionary costs can be fixed, variable or mixed costs.

Identifying unused capacity for engineered and discretionary overhead cost assignment help deals with engineered costs as well.

Engineered cost

  • Engineered costs stem from the well-defined relationship of cause and effect between inputs and outputs of a project.
  • Cost and benefit analysis of the project gives rise to a well-defined measureable degree of inputs and outputs.
  • Direct material cost is the best example for engineered costs.
  • Direct labor, proportion of input varying with volume of output comes under the purview of engineered costs.
  • Statistical techniques like regression and correlation analysis helps arrive at precise engineered costs.
  • In terms of cost behavior, engineered costs are variable in nature.
  • Engineered costs are precise and measurable.

The above explanation clarifies the basic idea of identifying unused capacity for engineered and discretionary overhead cost homework help.

For all practical purposes, we consider a modern approach towards unused capacity of the relevant resources.

We purchase resources under two circumstances

  • Some are acquired all of a sudden, as and when needed.
  • Other materials are sourced much in advance with proper planning.

We use up the entire resource that are acquired based on need. Hence the cost of the resource supplied is equal to the cost of the resource used. In the second case, there might be some unused resource.

Identifying unused capacity for engineered and discretionary overhead cost homework help states how the underutilized quantity exists in both categories of costs.

A traditional approach vis-à-vis activity based cost systems reveals the difference that stems from the underutilized capacity of the relevant cost factors. It allows students analyze the pricing and product mix to arrive at the cost based activity.

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