In Cost Account, explain what is Idle Capacity (Part 1 of 2)

December 8th, 2010 Comments off
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Idle Capacity:

  • That part of practical activity which cannot be utilized and beyond management control
  • Mainly due to lack of demand, non-availability of materials, shortage of labour, seasonal nature of product and lower sales expectancy
  • Idle capacity is the difference between the practical capacity and the capacity based on sales expectancy. It is therefore¬† the unused capacity of a plant equipment or department which cannot be used in an alternative manner.
  • Normally associated with cost of fixed nature like rent, rate, depreciation, repairs and maintenance, insurance premium, management supervisory costs which cannot be absorbed or recovered due to under-utilization of plant capacity

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Financial Accounting

 
 

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