Costing Product Capacity Of A Facility and Demand Affects

Do you wonder what your shop’s burden rates are for working 8-hour days but having only 4 hours of work to do? Do you charge your customer for all 8 hours? There are some companies that will charge for 8 hours of work even when there was only 4 hours of labor on a job. This gives an inflated cost to the product and may, thus, give it the appearance of not being profitable when, if fact, it was 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. Some situations where this may happen is when material is late, a machine broke down, etc. When this happens, management should be aware and may be able to change processes to make the shop more effective.


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