Which of the following best describes idle capacity costs?

Which of the following best describes idle capacity costs?

• A. Costs that minimize waste in production
• B. Costs related to maintaining underutilized resources
• C. Costs that can be attributed to high demand
• D. Costs minimizing the company’s overall expenditure

Answer: (B)

Idle capacity costs are best described as costs related to maintaining underutilized resources. This refers to the expenses incurred when a company's production capacity is not fully utilized, leading to inefficiencies. These costs can include fixed expenses like rent or salaries for equipment and staff that are not actively contributing to production because the demand for products or services is insufficient. When resources remain idle, the company still has to cover these costs without generating any revenue from the unused capacity, which can significantly impact profitability. Understanding idle capacity costs is crucial for management because it highlights the importance of aligning production capabilities with actual market demand to minimize waste and optimize resource allocation.

Idle capacity costs are best described as costs related to maintaining underutilized resources. This refers to the expenses incurred when a company's production capacity is not fully utilized, leading to inefficiencies. These costs can include fixed expenses like rent or salaries for equipment and staff that are not actively contributing to production because the demand for products or services is insufficient.

When resources remain idle, the company still has to cover these costs without generating any revenue from the unused capacity, which can significantly impact profitability. Understanding idle capacity costs is crucial for management because it highlights the importance of aligning production capabilities with actual market demand to minimize waste and optimize resource allocation.