Mahendra Gupta
Washington University in St. Louis
Taylor Randall
University of Utah
Anne Wu
National Chengchi University
Abstract: Recent literature in management accounting indicates disagreement on the role of capacity related costs in incremental decision-making. The disagreement is due, in part, to different assumptions regarding the behavior of costs within a capacity constrained environment. Presently, little empirical evidence exists to guide this line of research. We empirically examine the behavior of manufacturing performance, costs, revenues and profits within a capacity constrained production environment. The analysis provided makes the following contributions to existing capacity cost research. First, we provide initial empirical evidence that higher levels of capacity utilization are associated with deteriorated manufacturing performance and higher job level costs. Second, the empirical findings relating manufacturing performance and cost to capacity utilization go beyond effects currently found in analytical models. Third, ours is one of the first studies to jointly analyze both cost and revenue behavior at different capacity levels in a field setting.
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