## Types of Capacity
### 1. Installed / Rated Capacity
- Maximum theoretical capacity based on technical specifications
- Also called theoretical capacity
- Not achievable under normal operating conditions (assumes 24×7 with zero downtime)
### 2. Practical Capacity
- Installed capacity minus normal unavoidable losses (repairs, maintenance, idle time, holidays)
- Also called operating capacity or net capacity
- Generally 80–90% of installed capacity
- Used as the base for determining overhead rates in practice
### 3. Normal Capacity
- Average output achievable over several periods under normal conditions
- Adjusts for planned maintenance and routine time losses
- Smoother than actual capacity; used for standard cost setting
### 4. Actual Capacity
- Capacity actually achieved during a given period
- Expressed as a percentage of installed capacity
- Fluctuates period to period based on actual orders and operations
### 5. Idle Capacity
- Capacity that cannot be effectively utilised
- Two types:
| Type | Formula | Cause |
|---|---|---|
| Normal Idle Capacity | Installed Capacity − Normal Capacity | Inherent in operations (planned maintenance, holidays) |
| Abnormal Idle Capacity | Normal Capacity − Actual Capacity (when actual < normal) | Lack of demand, material shortage, labour shortage |
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## Treatment of Idle Capacity Costs
| Type | Treatment |
|---|---|
| Unavoidable Idle Capacity | Use a supplementary overhead rate; charge to capacity actually utilised |
| Avoidable Idle Capacity (faulty planning, power failure) | Write off to Costing Profit & Loss Account |
| Seasonal Idle Capacity | Inflate overhead rates to spread cost over productive output |
> Key principle: Normal/unavoidable idle capacity costs are a product cost (absorbed via overhead rates). Abnormal/avoidable idle capacity costs are a period loss (written off to P&L).