Labour efficency ratio and Labour capacity Ratio PEV

Re:Labour efficency ratio and Labour capacity Ratio PEV

Labour Efficeincy Ratio

Standard hours produced/actual hours worked x 100%



Labour Capacity Ratio

Actual hours worked/budgeted hours x 100%

Hope this helps

Re:Labour efficency ratio and Labour capacity Ratio PEV

Lindsay's reply is spot on

But my advice is to read the question (RTQ). If you have been looking at some recent papers you might see questions where these standard formulae cannot be applied.

For example if we are looking into the future (clues like forecast P&L or budget give this away) Then you CANNOT have an actual hours figure so the formulae cannot be used
If this happens switch off any rote learned formulae and think about the business
If the capacity is 37000 hours that would be the bottom of the fraction, and if management has set a budget that requires 40700 hours to be worked this represents 110% of the capacity
so there will need to be some more staff or temps brought in to bring capacity up to the budget requirement

Equally, management may have set a budget requiring 29600 hours to be worked, so this represents 80% of the capacity.

The formulae are great but RTQ before trying to apply them.

The stock holding period one is another case in point. If only materials make up the stock, but cost of sales includes labour and absorbed overhead then only the material part of cost of sales should go into your formula

This exam will test your knowledge and understanding of the syllabus. Show off how you understand the application of your knowledge rather than the ability to learn formulae off by heart

Sandy

Re:Labour efficency ratio and Labour capacity Ratio PEV

Many thanks everyone for the help, I really appreciate it!