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Control Ratios

Three important ratios are commonly used by the management to find out whether the deviations of actual from budgeted results are favourable or otherwise in respect of labour activity. These ratios are expressed in terms of percentages. If the ratio is 100% or more, the trend is taken as favourable. The indication is taken as unfavourable if the ratio is less than 100%. These ratios are

Activity ratio: It is a measure of the level of activity attained over a period. It is obtained when the number of standard hours equivalent to the work produced is expressed at a percentage of the budgeted hours.

Capacity ratio: This ratio indicates whether and to what extent budgeted hours of activity are actually utilized. It is the relationship between the actual number of working hours and the maximum possible number of working hours in a budget period.

Efficiency ratio: This ratio indicates the degree of efficiency attained in production. It is obtained when the standard hours equivalent to the work produced, are expressed as a percentage of the actual hours spent in producing that work: