Capacity costs also arise in nonmanufacturing parts of the value chain. Stassen may acquire a fleet of vehicles capable of distributing the practical capacity of its production facility. When actual production is below practical capacity, there will be unused-capacity costs related to the distribution function, as well as unused-capacity costs related to the manufacturing function.
As you saw in Chapter 8, capacity cost issues are prominent in many service-sector companies—such as airlines, hospitals, and railroads—even though these companies carry no inventory and so have no inventory costing problems. For example, in calculating the fixed overhead cost per patient-day in its obstetrics and gynecology department, a hospital must decide which denominator level to use: practical capacity, normal capacity utilization, or master-budget capacity utilization. The hospital’s decision may have implications for capacity management as well as pricing and performance evaluation.