Costing Product Capacity of a Facility and Demand Effects

Do you wonder what your shop's burden rates are for working 8-hour days with only 4 hours of work to do?

Do you charge your customer for all 8 hours?

Some companies will charge for 8 hours of work even when there were only 4 hours of labor clocked during a job. This gives an inflated cost to the product and may give the appearance of not being profitable. The unused time must be classified as “idle time” and its costs should not be attributed to a specific job cost or product family.

This unused time should be calculated and given to management in order to plan, schedule, and manage the company. Situations where this may happen include when a material is late or when a machine breaks down. When these situations occur, management should be aware so they can change processes accordingly to make the shop more effective.