Int. J. Business and Systems Research, Vol. 3, No. 4, 2009 497 Copyright © 2009 Inderscience Enterprises Ltd. Managerial perspectives for improving resource utilisation by applying the cost of unused capacity Zoltan Sebestyen* and Tamas Koltai Department of Management and Corporate Economics, Budapest University of Technology and Economics, Muegyetem rkp. 9. T. bld. 49, Budapest 1111, Hungary E-mail: sebestyen@mvt.bme.hu E-mail: koltai@mvt.bme.hu *Corresponding author Abstract: For production managers, the traditional measures for evaluation resource usage are capacity utilisation and efficiency. These measures concentrate on the amount of resources used, and ignore the value of resources left idle. The concept of the cost of unused capacity developed in conjunction with activity-based costing by Cooper and Kaplan makes it possible to present information for managers about the value of idle resources as well. In this article, a continuous flow operation and a part manufacturing operation are used to illustrate the application of the cost of unused capacity in production and capacity planning-related decisions. Keywords: cost of unused capacity; fixed cost; production planning; systems. Reference to this paper should be made as follows: Sebestyen, Z. and Koltai, T. (2009) ‘Managerial perspectives for improving resource utilisation by applying the cost of unused capacity’, Int. J. Business and Systems Research, Vol. 3, No. 4, pp.497–513. Biographical notes: Zoltan Sebestyen is an Associate Professor at the Budapest University of Technology and Economics. He obtained an Msc in Mechanical Engineering, an MBA and PhD from the Budapest University of Technology and Economics. His current research interests include modern costing methods in operations management decisions and quality management issues in project management. Tamas Koltai is a Professor of Production Management at Budapest University of Technology and Economics. He obtained an Msc in mechanical engineering and PhD in Industrial Engineering. His research areas are cost analysis of manufacturing and service operations and mathematical modelling of manufacturing and service systems. He has a special interest in flexible manufacturing. 1 Introduction Studies on production systems (Johnson, 1991; Kaplan, 1990) show that variable cost-based operations management methods dominated the production decision-making process for several decades. For example, product mixes were determined based on contribution margin maximisation or variable cost minimisation, production planning