2 Apr 2018

What is Capacity cost ?

Finance feed by:

CA Rahul Agarwal
B.com (Hons),CA
CA in Practice    •    15 Year 6 Month  experience

Capacity Cost are expenses incurred by an organization to increase its capacity to conduct business operations.

This part of a company's expenditure is intended to help expansion and increase activities, or for establishment of premises from where the business operations can be conducted. This expense remains fixed irrespective of the level of business activity.

These are examples of capacity costs. These can be avoided or minimized only by shutting down the business or outsourcing the services. For any business, it is difficult to avoid costs like insurance, rent payments, property taxes, depreciation on equipment, etc.

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