Tracking throughput performance requires separating labor volume variances from physical efficiency. This lesson details the core capacity formulas used by global management structures to evaluate labor output.

To assess direct labor performance, cost analysts calculate three primary interrelated percentages:

Efficiency Ratio = (Standard Hours Allowed for Actual Output / Actual Hours Worked) × 100

Activity (Utilization) Ratio = (Standard Hours Allowed for Actual Output / Budgeted Hours) × 100

Capacity Ratio = (Actual Hours Worked / Budgeted Hours) × 100

These three ratios maintain a precise mathematical relationship:

Activity Ratio = (Efficiency Ratio × Capacity Ratio) / 100

If a department reports a low Activity Ratio, looking at the Capacity and Efficiency components helps pinpoint the source of the issue. For example, a low activity ratio paired with high efficiency indicates that while workers are fast and focused when active, the plant lacks the capacity or scheduling consistency to keep them consistently supplied with materials.