Labour Capacity Ratio

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi

Can anyone help me on this one please.
June 2005 PEV Past Exam paper.

Task 2.1
g) Labour Capacity ratio.

I thought it was Actual hours/budgeted. But this is not working for me.

Thanks
Yas

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Sorry - Thats Dec 2004 Paper

    Going mad this Monday night!!!

    Yas
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    I had a look at the answers on this site (sneaky I know!) and it looks like budgeted hours/factory capacity hours x 100.

    Factory A is 75,000 budgeted over 70,000 capacity x 100 which is 107.1%

    Factory B is 85,000 budgeted over 140,000 capacity x 100 which is 60.7%.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    I think labour capacity variance ratio s/be: standard hours produced/budget hours.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Thanks Jackie

    But I would not do this in an exam. I would put Actual over Budgeted. Not budgeted over capacity.

    Any ideas to know which method to use?

    Im probably being thick again.

    thanks
    Yas



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Don't know if I am right or not, but I use the actual/possible x 100 calculation. Actual required for Factory A is 75000 and possible is only 70000 so they need more hours than they have got?

    Would welcome any clarification as with three exams coming up, my brain is completely fuddled and I've not come up against this before!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    If you calculate the total variance, starting from budget standard cost and ending with actual cost, the variances involved are:
    1.Rate
    2.Efficiency
    3.Planning

    I think that what you are calling Capacity variance could be the Planning one, ie. the variance caused by the planned budget capacity being exceeded or underused. This requires comparison of the standard cost of the budget quantity with actual quantity produced. This is (AQ-BQ)xSHxSR.

    I suggest you do the sums with a simple example and reconcile your variances to the total variance.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Looking at the FTC study text, it defines Capacity Ratio as Actual Hours worked/Budgeted Hours

    Perhaps someone from AAT could explain why in the DEC 2004 exam budgeted hours/capacity hours was used.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Look at the question

    Both sets of accounts are budgets

    No hours have actually been worked yet

    So you have a factory where the orders are more than the time you have to produce them. That constitutes a capacity ratio of more than one.(over 100%)

    It will need overime working or agency staff to ensure the orders are completed.

    The other factory is the opposite.

    This is another opportunity to show the examiner you UNDERSTAND these ratios and prove that you are not relying on rote learning.

    Beware in these exams. The examiners think there will be candidates who:
      Don't read the question
      Rely on rote learning
      Won't show their workings

    Prove them wrong. Show them you understand the concepts and can apply them in the context of the exam scenarios.

    sandy.hood@chichester.ac.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Edit
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Labour Capacity Ratio

    Thanks for the clarification Sandy.

    Much appreciated.


    Yas

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