Budgeted capacity, also known as normal capacity, refers to the productive capacity available in an organization for a budget period as stipulated in the budget for that period. This may be expressed in terms of direct labor hours, machine hours, or standard hours, providing a crucial metric for organizational planning and resource allocation.
Understanding an organization’s maximum achievable output given the available resources such as labor and machinery, under specific conditions.
In a system of standard costing, the fixed overhead capacity variance measures the difference between the actual hours worked and the budgeted capacity available, valued at the standard fixed overhead absorption rate per hour.
Idle capacity refers to the portion of an organization’s budgeted capacity that is not utilized, resulting in unused hours. It is often measured in hours and indicates the gap between actual hours worked and budgeted available hours.
Normal capacity is a measure of production that reflects the average level of operating activity needed to meet production demands over a long period. It considers both seasonal fluctuations and normal occurrences of idle time.
