Idle capacity cost should be:
ACharged to direct labour
BCapitalised
CAbsorbed as period cost
DRefunded
Answer & Solution
Correct answer: C. Absorbed as period cost
1. Idle capacity reflects unused productive resources.
2. The cost of idle capacity is not attributable to actual production.
3. Modern costing treats it as a period cost charged to the costing P&L.
4. Capitalisation or direct-labour treatment would distort product cost.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.7 ¶2_
Related questions
Activity-based costing improves on traditional absorption by:Stores keeping cost is best apportioned to producing departments using:Predetermined overhead rate is used because actual rate becomes available only:Departmentalisation of overheads aids:Selling overhead is best apportioned on the basis of:Blanket overhead rate is single rate for:Reciprocal services between two service departments are best handled by:Recovery of overheads on percentage of direct wages basis is calculated as: