Control ratios

Control ratios — the efficiency, capacity, and (production) activity ratios — express standard-costing labour and output variances as percentages by comparing standard hours, actual hours, and budgeted hours.

ByHoang TruongUpdated July 11, 2026

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A department budgets 2,000 hours, works 1,800 actual hours, and produces output whose standard hours allowed is 1,890. The efficiency ratio is 1,890 divided by 1,800, or 105%. The capacity ratio is 1,800 divided by 2,000, or 90%. The activity ratio, 1,890 divided by 2,000, is 94.5%, equal to efficiency multiplied by capacity.

Where it fits

SubjectManagerial AccountingAdvancedTopicStandard Costing & Variance AnalysisAdvanced

The formula

LaTeX

E = \frac{SH}{AH} \times 100

Variables

$E$: Efficiency ratio (%)
$S H$: Standard hours for actual output (hours)
$A H$: Actual hours worked (hours)

Shows whether the workforce used more or fewer hours than standard to produce the actual output; over 100% means better than standard efficiency.

LaTeX

C = \frac{AH}{BH} \times 100

Variables

$C$: Capacity ratio (%)
$A H$: Actual hours worked (hours)
$B H$: Budgeted hours (hours)

Shows what proportion of the budgeted hours were actually available and worked, independent of how efficiently those hours were used.