What a production unit could normally produce in a period, what it actually produced, and the fixed overhead that period carried. From these figures you can see how much of your fixed overhead was absorbed by production, and how much was the cost of running below capacity.
When to use it
At each period close, once actual output and the fixed overhead for the period are known. Costing standards require the idle part of fixed overhead to be charged as a cost of the period, not buried in the value of what you made.
Before you start
The production units must exist as Cost Centers. You need the period's actual output and its fixed overhead, in the same measure you use for normal capacity.
Where to find it
Masters > Manufacturing > Production Capacity.
The fields on this screen
| Field (on screen) | What to enter | Required |
|---|---|---|
| Period Type (month/fy) | Whether this row covers one month or a full financial year. Enter month or fy. | No |
| Period End | Last day of the period this row covers, such as the last day of the month. | No |
| Cost Center (id) | Branch, project or department this capacity belongs to. Lets you report profit and cost per unit. | No |
| Normal Capacity | Output this centre is expected to make in a normal period. Fixed overhead is absorbed on this figure. | No |
| Actual Capacity | What the centre actually made in the period. Actual over normal gives the utilisation percentage. | No |
| Fixed Overhead | Fixed overhead for the period. The share matching utilisation is absorbed; the rest is idle cost. | No |
How it works
- Enter one row per period and production unit. Leave the period type as month unless the row covers a whole financial year, and set Period End to the last day of the period.
- The Idle Capacity Cost report reads these rows. It works out utilisation as actual against normal capacity and splits the fixed overhead in that proportion. It shows the absorbed part separately from the idle cost, which belongs in the period's profit and loss, not in the value of production.
- If Normal Capacity is left at zero, the whole fixed overhead is treated as absorbed and no idle cost is reported.
- A row here does not change any product's cost on its own. What it does is make the idle cost visible and measurable.
Tips and common mistakes
- Use one measure throughout. Normal and actual capacity must be in the same units (machine hours, tonnes or pieces), or the utilisation means nothing.
- Keep one row per period and production unit. Two rows for the same pair will double count.
- Normal capacity is what the unit can keep up in normal conditions. It is not the theoretical maximum, and not last period's actual.
- Enter it every period. A missing period does not appear on the report.
Related guides
- Cost Center (the production units), Idle Capacity Cost and the other costing reports, Production Order.