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We can split the 2-stage allocation Process in:

1^st: direct cost Assignment. To direct materials and to products.

2^nd: allocation of Indirect costs. Production overhead costs are allocated among main and support Centers using allocation bases.

 3^rd: allocation of the cost of Support centers. Allocated to the main centers.

4^th: assignment of Overhead costs. Overhead costs are imputed to products.

Capacity Costs: Capacity is The maximum amount of output in a productive center during a given period. It Is limited by a wide range of issues, such as the layout, the vailability of Qualified workers and the production methods. To avoid ambiguous measurements, When analyzing capacity we will measure it in units of time or space and when Analyzing yield we will measure it in units of time.

4 Different definitions of capacity:

a)Theoretical Capacity(or ideal): number of activity hours, in absence of normal Interruptions.

b) Practical capacity: number of activity hours deducing the time of normal Interruptions, but discarding interruptions due to lack of demand.

c)normal Capacity: number of activity hours deducing the time of normal interruptions, The interruptions due t lack of demand and due to inefficacies.

d)Expected Capacity: number of activity hours expected to satisfy the previews demand During the next period.

Cost of Fixed assets:

The assets’ Loss of value is traditionally attributed to 3 main causes that require Different accumulation rules:

1^st: Physical depreciation. Depreciation is due to the aging of the aaset and Independent from the level of activity and could generate underactivity costs. This is a charge for usage.

2^nd: Functional depreciation: depreciation is a function of the level of usage of The asset. Depreciation is associated with activity and will not generate any Idleness cost.

3^rd: Economical depreciation. The fraction of depreciation that is due to Obsolescence and to technological progress.