### Syllabus C1bvi)

Explain and calculate labour efficiency, capacity and production volume ratios.

### Labour efficiency, capacity and production volume ratios

### Labour Efficiency Ratio

- measures the performance of the workforce by comparing the actual time taken to do a job with the expected time.

Standard hours

Labour Efficiency Ratio = ------------------ x 100%

Actual hours

#### Illustration

A Co. budgeted to work 8,000 hours manufacturing 20,000 units.

They actually produced 25,000 units and it actually took them 11,000 hours to produce them.

**What is the labour efficiency ratio?**

**Solution**

**Step 1: Calculate the Standard hours**Budgeted hours to produce 1 unit = 8,000 hours / 20,000 units = 0.4 hours per unit

Standard hours to produce the Actual units = 0.4hr per unit x 25,000 units = 10,000 hours

**Step 2: Calculate the Labour Efficiency ratio**Labour Efficiency ratio = Standard hours / Actual hours x 100%

= 10,000 / 11,000 x 100% = 90.9%

### Labour Capacity Ratio

- measures the number of hours spent actively working as a percentage of the total hours available for work.

Actual hours

Labour Capacity Ratio = -------------------- x 100%

Budgeted hours

#### Illustration

A Co. budgeted to work 8,000 hours manufacturing 20,000 units.

They actually produced 25,000 units and actually took 11,000 hours.

**What is the capacity ratio?**

**Solution**

Labour Capacity Ratio = Actual hours / Budgeted hours x 100%

Labour Capacity Ratio = 11,000 / 8,000 x 100% = 137.5%

### Labour Production Volume Ratio

- compares the number of hours expected to be worked to produce actual output ( Standard hours) with the total hours available for work (Budgeted hours).

Standard hours

Labour Production Volume Ratio = -------------------- x 100%

Budgeted hours

#### Illustration

A Co. budgeted on producing 20,000 units with 8,000 budgeted labour hours.

They actually produced 25,000 units and actually took 11,000 hours.

**What is the labour production volume ratio?**

**Solution**

**Step 1: Calculate the Standard hours**Budgeted hours to produce 1 unit = 8,000 hours / 20,000 units = 0.4 hours per unit

Standard hours to produce the Actual units = 0.4hr per unit x 25,000 units = 10,000 hours

**Step 2: Calculate the Labour Efficiency ratio**Labour Production Volume Ratio = Standard hours / Budgeted hours x 100%

Labour Production Volume Ratio = 10,000 / 8,000 x 100% = 125%