Ans. BUDGETARY CONTROL RATIOS
Three
important ratios are commonly used by the management to find out whether the
deviations of actuals from budgeted results are favourable or otherwise. 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:
1)
Activity Ratio
2)
Capacity Ratio
3)
Efficiency Ratio Let us study these ratios in brief.
1)
Activity Ratio
It
is the measure of the level of activity attained over a period. It is obtained
when the number of standard hours equivalent to the work produced are expressed
as a percentage of the budgeted hours.
Activity
Ratio = Standard hours for actual production × 100
Budgeted hours
2)
Capacity Ratio
This ratio indicates whether and to what extent
budgeted hours of activity are actually utilised. It is the relationship
between the actual number of working hours and maximum possible number of
working hours in budget period.
Capacity Ratio = Actual hours worked × 100
Budgeted
hours
3)
Efficiency Ratio
The 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.
Efficiency
Ratio = Standard hours for actual
production × 100
Actual hours worked
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