Tuesday, 2 February 2016

Labour Efficiency Formula

Labour Efficiency Formula

Labour efficiency formula is given below. Labour efficiency formula has been explained with a simple example.

Labour Efficiency Ratio =   Expected Labour Time.   X 100
                                             Actual Labour Time

Labour Efficiency Formula Example


Unit Labour Hours = 10 Hours
Total unit produced =500 units
Actual Hours Spent = 4000 Hour

Solution

In first place, Standard hour is to be calculated and then with help of standard hours, we would calculate labour efficiency

1.    Standard Hours Calculation


Standard hours = 500 unit x 10 hr= 5,000 hrs

2.    Labour Efficiency Calculation


Labour Efficiency Ratio =   Expected Time.   X 100
                                        Actual Time
5000/4800 x 100
= 125% (Labour efficiency)

Technically 125% efficiency ratio means that efficiency has been 25% above the standard efficiency.

Significance of Labour Efficiency


Labour efficiency ratio information shows employee performance or efficiency during the production process. If expected time is more than actual time, it means Labour performance has been better than standard, otherwise performance is regarded below expectation. Labour efficiency information can be used by the management for employee’s performance evaluation and reward announcement.

Relationship between Labour Time and Efficiency Ratio


The relationship between expected time and actual for efficiency calculation has been shown mathematically.

Expected Time > Actual Time (Efficiency would be more than 100%)
Expected Time < Actual Time (Efficiency would be less than 100%)


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