An idle time is used to describe the time for which assets are not being utilized and do not bring any productive output to the company. As a result, the idle time has a negative impact on business profitability. Although, the business has to continuously incur costs in wages, factory overhead, maintenance costs, etc. So, it must be minimized.
On the other hand, the term idle capacity refers to the underutilization of manufacturing plants. This unused capacity of a manufacturing plant has a negative impact on a company’s finances. It’s because the business continuously incurs MRO (maintenance, repair, and operating) costs and is unable to get the maximum possible output. Therefore, management must try to reduce idle capacity as well.
Let’s discuss detailed aspects of the differences between idle time and idle time capacity.
|Idle time causes
|Idle time capacity
|Due to overstaffing, a company might have more employees than required, resulting in many employees getting paid for spending idle time at the workplace, doing nothing.
|Lack of qualified labor to run the equipment can result in production planning below capacity.
|Due to insufficient supplies or inadequate inventory holding capacity, the management might pause company operations, leading to idle time.
|Lack of market demand for the product can result in idle time capacity. For instance, if the demand for ice cream is reduced in winters, ice cream-making machines would remain idle despite having the capacity to produce ice cream.
|Natural disasters and other unforeseen events can indirectly lead to idle time.
|Lack of required raw materials. For instance, if milk supply runs short due to the high demand for ice cream in summers, then the capacity of ice cream manufacturing machinery would remain unutilized.
|New hires, poorly trained workers, and unsatisfied employees show inefficiency, which leads to damages, delays, mistakes, and ultimately more waiting time.
|Disorganized work procedures can lead to idle capacity as the output of one machine is the input for the second machine. For instance, the cone machine cannot be utilized in the ice cream factory until the cream to fill in the cone is ready. Hence, machines are underutilized.
|Inefficient work systems cause unnecessary work delays in work processes like getting approvals and daily work schedules, all of which lead to more waiting and time wastage.
|Damage to equipment and power outages lead to indefinite periods of idle time.
So, there is a conceptual difference as idle time is a broader category and can be due to any reason. On the other hand, idle capacity is due to the inability of the business to use the production facilities at maximum potential.
Types of Idle Time
Idle time can be of two types:
1) Normal Idle time (downtime)
This kind of idle time is expected, unavoidable and uncontrollable by the management. Normal idle time exists when the machine or labor is capable of use but is not being used because of certain circumstances For instance, the machine is undergoing regular maintenance or the employee is gone for a tea break.
2) Abnormal Idle time
Abnormal idle time exists when machines or labor cannot be used due to certain reasons like the malfunctioning of equipment or the absence of an employee due to medical leave. This type of idle time is unexpected, avoidable, and manageable by the management. Abnormal idle time can be reduced if the management takes some steps.
Example to understand the difference between normal and abnormal idle time
Let us understand the difference between normal and abnormal idle time with the help of an example of a paint manufacturing firm. The time spent in setting up of machinery, the time spent in waiting for the paint to dry up so that the next task can be performed, the time taken by employees to get the daily work schedule, the tea breaks, and personal breaks taken by workers, the time spent in traveling between different departments of the factory and the time spent for regular machine maintenance like stopping of machines to prevent heating up, etc. are all examples of normal idle time.
On the other hand, the time lost when a part of the machine gets damaged and stops working, a worker gets injured and is sent to the hospital, workers go on strike, a sudden power outage, and machinery shut down, or the supply of materials becomes inadequate, and manufacturing is discontinued are all cases of abnormal idle time.
Controlling Abnormal Idle Time
Idle time cannot and should not be eliminated; instead, it should be minimized to a level that ensures the long-term efficiency of the firm. Normal idle time, when an employee takes breaks to prevent burnouts and machines are stopped to prevent heating up of engines, is necessary to ensure smooth workflow and doesn’t need to be adjusted. However, abnormal idle time is undesirable. Thus, it should be reduced to a possible extent through proper measures discussed further.
- Lean practices should be implemented to optimize operational procedures to reduce wastage of time. For instance, downsizing in case of overstaffing to manage several employees, providing workers their work schedules before the work shift starts, setting up of machines before the employees reach the factory, formulating and communicating clear SOPs to prevent malfunctioning, ensuring that all required tools, supplies, and raw materials are available and accessible.
- The performance of engineers, technicians, storekeepers, maintenance staff, and all other employees should be monitored to prevent mishaps.
- Teams comprising multiple employees should be formulated to catalyze the work process for bigger projects where one task needs to be completed before moving on to the next.
- Machine maintenance checks should be carried out before and after work shifts rather than during working hours.
- A natural disaster cannot be avoided, but systems should be established to deal with them, e.g., generators can compensate for power outage issues.
The calculation for Idle Time
Idle time is calculated by obtaining the difference between total available time and actual productive time.
Idle time = Total Available Time – Actual Productive Time
For example, a factory worker David has a daily work shift of 8 hours, but he works for 7 hours.
Idle time = 8 hours – 7 hours = 1 hour
The supervisor should classify this one hour as normal or abnormal idle time and then take measures to reduce the abnormal idle time of the employee.
The calculation for Idle Capacity
Idle capacity is the difference between ‘theoretical capacity and ‘actual production .’ Theoretical capacity is the maximum capacity of production of a plant under ideal conditions. In contrast, actual production, also called ‘productive capacity, is the capacity of the plant used in reality to produce output. Idle capacity is mostly expressed in percentage or in hours.
Idle capacity = Theoretical capacity – Actual production
Idle capacity = (Total budgeted hours – Actual hours × 100) / Total budgeted hours
For example, the Frozen Custard machine in an ice cream-making factory has a total theoretical capacity of producing 10,000 units in 12 hours. Still, it produces 8000 in 10 hours due to some reasons.
Idle Capacity = (12 – 10 × 100)/ 12 = 16.67 % of the machine is remained unutilized.
Idle time is when a business is unable to continue production. It may be normal or abnormal. Normal idle time is when sitting idle is part of the job. For instance, time spent on regular machine maintenance is considered normal idle time, and idle time due to power shortage is abnormal idle time. On the other hand, idle capacity is when the production plant is underutilized. For instance, demand for ice cream decreases during the winter season, and production plants are underutilized.
Both idle time and idle plant capacity adversely impact business profitability. So, these should be controlled at all stages of production.
Frequently asked questions
Is idle time controllable?
Sometimes, idle time may be controllable. However, that’s not always the case. For instance, idle time due to heated equipment is probably not controllable because if managers keep using heated machines, it might lead to a more significant loss than idle time. So, it’s a normal idle time and not controllable. On the contrary, abnormal idle time, like time waste, can be controlled.
So, usually, normal idle time cannot be controlled, and abnormal idle time can be controlled.
What is the accounting treatment of idle time?
Normal idle time is included in the overhead expense of the company, which is absorbed in product costing. So, it becomes part of finished goods costing. On the other hand, abnormal idle time is directly charged in the profit and loss statement.
What type of businesses face an idle capacity problem?
Usually, seasonal businesses face an idle capacity problem. However, normal businesses may also face such problems due to production bottlenecks.