Idle capacity cost
In one sentenceThe part of fixed costs corresponding to available production capacity not used during the period; it is usually presented as an expense, not a product cost.
Simply put
If you equipped your factory to produce a certain quantity and produced less, part of the rent, depreciation and salaries was paid for capacity you did not use.
Separating this cost shows management the price of idle capacity, so it looks for additional sales or special orders to fill it.
Worked example
A factory with fixed costs of 170,000 SAR and a practical capacity of 8,500 units produced only 7,000 units this year.
Absorption rate170,000 ÷ 8,500 = 20 SAR per unit
Idle capacity8,500 − 7,000 = 1,500 units
Idle capacity cost1,500 × 20 = 30,000 SAR
Formula: Units of practical capacity not produced × fixed absorption rate
Don't confuse it with
Fixed overhead volume varianceThe variance compares against the output planned in the budget, while idle capacity cost compares against the practical capacity available.