Lies, Damned Lies, and Cost Accounting by Reginald Tomas Lee

Author:Reginald Tomas Lee
Language: eng
Format: epub
Publisher: Business Expert Press
Published: 2016-09-15T00:00:00+00:00

Exhibit 15.1 Capacity is no different from any other financial transaction. Capacity cost is tied to how much you buy and the price you pay. The only time capacity costs go up, therefore, is when you buy more capacity or the price that you buy has increased. This is why capacity costs and how you use capacity are mathematically independent

Exhibit 15.2 When buying input, there are only two ways to reduce costs: either buy less or buy the same thing cheaper. For instance, if you want to reduce space costs, you either have to reduce the total area you are buying, or find a location that offers the same amount of area at a lower price

Upon buying input capacity, we can use it to do work (Exhibit 15.3). Notice when we began consuming input capacity, there is no change to what we paid for it. The costC and the output are mathematically independent, because no matter how we change the independent variable (output), the dependent variable (costC) does not change, as seen in Chapter 12 and repeated here for convenience in Exhibit 15.4.

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