Measurement of the Idle-Capacity Variance.

Abstract The article highlights that at present time a disparity exists within accounting literature in quantifying the idle-capacity variance. The divergent methods used to calculate the variance indicate that, as yet, accountants have failed to agree on its meaning. The theory of overhead absorption has experienced significant improvements in a relatively few years, but it still is not fully developed. This article explores some deficiencies believed still to exist and some possible causal factors related to idle-capacity variance. Primary among the misconceptions covering the idle-capacity variance is an assumption that it measures the dollar loss due to the presence of idle plant facilities. This concept has resulted in a computational stagnation. The results of the stagnation have been a continuance of the idle capacity from predetermined actual rate to standard rates. As a consequence there is a theoretical deficiency in the analysis of standard-cost overhead variance. The article says that there are vast majority of current accounting texts and certified accountant program exam solutions are, it is believed, pursuing a definition under standard costing which is not preferable.