Dictionary of Accounting Terms: idle capacity variance
idle capacity variance
measure of utilization of plant facilities. The variance results when a plant is underutilized (idle), and actual production falls below the expected, budgeted, or normal activity,known as denominator level.
For example, assume that the denominator activity in machinehours was 5000 and the fixed overhead applied rate is $6. The actual hours used were 4200. The idle capacity variance is (5000 - 4200) x $6 = $4800, an unfavorable variance because the company's plant was underutilized.
