Introduction to Idle facilities
The word "facilities" means plant, services and machines. So, the meaning of idle facilities is idle plant, machines or services. While a machine or plant remains idle, expenses like insurance, rent etc. carry on to be incurred. The expenses acquires during this time while the facilities remain idle are termed as idle facilities costs. In which idle time of plant is attributable to unavoidable reasons like techniques of production requiring machines that cannot be fully used, (that is reserve machines or machines employed in a seasonal factory) the cost of idle facilities should be involved in the works overheads. Where plants or machines are idle on account of trade depression or desire of work, the cost of idle facilities should be written off from the costing profit and loss account. It might be helpful here to appreciate the classification of capacity for ascertaining idle capacity costs:
1. Maximum Capacity. It is the maximum capacity up to which group of or machine constituting a manufacturing unit can be worked given there is no loss of operating time.
2. Practical Capacity. It is the capacity existing for utilisation for all practical purposes. It serves like the basis for planning the capacity utilisation. It is set after giving proper consideration to normal shut-downs because of maintenance or weekly and national holidays.
3. Normal Capacity. It is identical to practical capacity apart from that long term sales trends are kept in mind when fixing this capacity. In other words, it is arrived at through deducting the estimated idle capacity like revealed through long term sales trend from practical capacity.
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