good day sir
Is there any difference between calculating labor efficiency and production efficiency ? I am a bit confused on how we treat lost production hours for example do we treat lost production hours like idle time?
Q. A company makes a product for which the standard labor time is 2 hours per unit. The budgeted production hours for a given week were 820. During the week the production staff were able to produce 380 units of products. staff worked and were paid for 800 hours. During the week 20 production hours were lost due to a shortage of material.
what is the efficiency ratio?
I know the efficiency ratio is calculated as Standard divided by Actual but l do not understand why we have to subtract the 20 lost production hours from the worked and paid hours? (380units x 2hours)/ 800hrs less 20hours
kindly assist the best way you can.
Ask the Tutor ACCA MA
Performance measurement - efficiency ratio
7y ago#1Labour efficiency is measuring whether they are actually working faster or slower than expected.
Although they were paid for 800 hours, the only actually worked for 780 hours.
There were expected to take 760 hours for the actual production.
Therefore the efficiency ratio is 760/780.
many thanks sir, its clear now
7y ago#3You are welcome :-)
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