Idle costs

In business administration, part of the fixed costs is described under the term idle costs. The term belongs to partial cost accounting.

Definition / explanation

In business administration, idle costs are understood to mean that part of the fixed costs that are not associated with any benefit. They arise from unused capacities in the company.

Operiert ein Unternehmen nicht an sämtlichen Kapazitätsgrenzen, sind Leerkosten unvermeidlich. Als Teil der Fixkosten sind Leerkosten nicht einsparbar, sie sind nur in Utility costs – dem Gegenstück zu den Leerkosten – umwandelbar, indem die Ausnutzung der unternehmenseigenen Ressourcen weiter in Richtung der Kapazitätsgrenzen verschoben wird.

Creation of idle costs

The term idle costs is to be classified in the area of corporate controlling in the partial cost accounting. Here the fixed costs, which are always incurred regardless of production, are divided into idle costs and Utility costs.

The idle costs are not offset by sales. The loading principle is used to determine this.

Calculate empty costs

In general, the idle costs (LK) for a specific cost center can be determined as:

Empty costs = (1 - degree of utilization of the position under consideration) * fixed costs

Types of idle costs

Basically, idle costs can be divided into structural and operational idle costs.

Structural idle costs are plannable and operational are unplannable idle costs. The difference arises from the durability of their existence.

In both cases, the idle costs result from the difference in costs between the planned and actual output quantity. In the case of structural idle costs, this difference remains permanent, while operational idle costs are of a temporary nature and can be eliminated, for example, through resource shifting.

Summary

  • Idle costs are fixed costs that arise due to unused capacities
  • can occur permanently (structural idle costs) or only temporarily (operational idle costs)
  • Formula: Empty costs = (1 - degree of utilization) * fixed costs
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