How to do we treat Idle Capacity in Cost Accounts?(Part 2 of 2)

December 9, 2010 by

Idle capacity can be broadly divided into Normal or AbnormalTreatment of NORMAL IDLE CAPACITY in the cost accounts:

Due to unavoidable reasons are included in works overheads and absorbed into the cost of production either by inflating the overhead rate or by means of a supplementary overhead rate ( see article on details of idle capacity & its reasons )

Treatment of ABNORMAL IDLE CAPACITY in the cost accounts:

Due to avoidable reasons such as lack of proper planning and control. Charged to costing profit & loss account