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Labor efficiency ratio

This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.

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February 5, 2020 at 8:03 pm #560875
japime
Participant
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A company budgeted on producing 20,000 unit and taking 8,000 labor hrs. They actually took 11,000 hrs to produce 25,000 units.
What is the labor efficiency ratio?
The answer is 90.9% , and they got it by dividing standard hrs (25,000/20,000)(8000) to actual hrs (11,000)
Please explain what they did to get standard hours. I dont understand how or why they did it .
February 6, 2020 at 8:07 am #560911
John Moffat
Keymaster
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From the budget, the standard hours per unit are 8,000 / 20,000 = 0.4 hours per unit.
Therefore, the 25,000 units actually produced should have taken 25,000 x 0.4 = 10,000 hours.
They actually took 11,000 hours, and so the efficiency ratio. is 10,000/11,000 = 90.9%
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