Part A

Josie Company provides financial operations consulting to small to mid-size organizations.

While many factors influence and determine capacity (the total cost of which is $400,000 per year), Josie Company's management has decided to measure and report capacity costs on a per consulting-hour basis.

Management estimates that, on average, the existing labor resources can provide services that amount to $103.89 per hour. This amount takes into account down-time, training, and other normal labor-oriented considerations that influence productivity.

Ignoring these factors, the cost per hour would be $94.12.

The projected cost per hour for the upcoming accounting period - which includes a market slowdown - is $111.11 per hour. However, this estimate is an exception, as Josie normally provides services at full capacity (taking into account the labor-related factors noted above).

Required

1. There are 4 different measures of capacity. Using the information above, list these measures by name, and identify the number of hours that reflect each measure.

2. Management is considering whether to use a supply-based capacity measure or a demand-based capacity measure. to allocate costs associated with this internal service. Identify and discuss the benefits of using a (A) supply-based measure versus a (B) demand-based measure.