Question Tag: Production Volume Ratio

i) Efficiency Ratio:
Efficiency ratio is calculated as:

Efficiency Ratio=Standard hours for actual productionActual hours worked×100%\text{Efficiency Ratio} = \frac{\text{Standard hours for actual production}}{\text{Actual hours worked}} \times 100\%Efficiency Ratio=Actual hours workedStandard hours for actual production​×100%

Standard hours for actual production:

• Petrol: 5060×45,000=37,500 hours\frac{50}{60} \times 45,000 = 37,500 \text{ hours}6050​×45,000=37,500 hours
• Diesel: 3060×50,000=25,000 hours\frac{30}{60} \times 50,000 = 25,000 \text{ hours}6030​×50,000=25,000 hours
• Pre-mix fuel: 4560×40,000=30,000 hours\frac{45}{60} \times 40,000 = 30,000 \text{ hours}6045​×40,000=30,000 hours

Total standard hours for actual production = 92,500 hours

Efficiency Ratio = 92,500100,000×100%=92.5%\frac{92,500}{100,000} \times 100\% = 92.5\%100,00092,500​×100%=92.5%

Interpretation:
This ratio indicates that the actual production level was achieved in more time than the standard time set for it. The company operated at 92.5% efficiency, meaning the production was 7.5% below the normal efficiency level. (3 marks)

ii) Capacity Ratio:
Capacity ratio is calculated as:

Capacity Ratio=Actual hours workedBudgeted hours×100%\text{Capacity Ratio} = \frac{\text{Actual hours worked}}{\text{Budgeted hours}} \times 100\%Capacity Ratio=Budgeted hoursActual hours worked​×100%

Budgeted hours:

• Petrol: 5060×42,000=35,000 hours\frac{50}{60} \times 42,000 = 35,000 \text{ hours}6050​×42,000=35,000 hours
• Diesel: 3060×60,000=30,000 hours\frac{30}{60} \times 60,000 = 30,000 \text{ hours}6030​×60,000=30,000 hours
• Pre-mix fuel: 4560×45,000=33,750 hours\frac{45}{60} \times 45,000 = 33,750 \text{ hours}6045​×45,000=33,750 hours

Total budgeted hours = 98,750 hours

Capacity Ratio = 100,00098,750×100%=101.27%\frac{100,000}{98,750} \times 100\% = 101.27\%98,750100,000​×100%=101.27%

Interpretation:
This ratio indicates that the actual hours worked were more than the budgeted hours by 1.27%, or 1,250 hours. (3 marks)

iii) Production Volume or Activity Ratio:
Production volume ratio is calculated as:

Production Volume Ratio=Standard hours for actual productionBudgeted hours×100%\text{Production Volume Ratio} = \frac{\text{Standard hours for actual production}}{\text{Budgeted hours}} \times 100\%Production Volume Ratio=Budgeted hoursStandard hours for actual production​×100%

Production Volume Ratio = 92,50098,750×100%=93.7%\frac{92,500}{98,750} \times 100\% = 93.7\%98,75092,500​×100%=93.7%

Interpretation:
This ratio indicates that the actual production level is 6.3% less than the budgeted level of production. (4 marks)