ABC Ltd. produces two products X and Y in its production unit. Each unit of X and Y takes 5 hours and 10 hours as production time respectively. 1000 units of X and 600 units of Y were produced in a month. Actual man-hours in this production were 10,000. Yearly budgeted hours are 96,000. The activity ratio is –

Correct option is B

​Activity Ratio measures the level of actual activity (in standard hours) achieved compared to the budgeted activity level. It is calculated using the formula:

Step-by-step Calculation:

1. Standard hours for actual production:

   • Product X:
     1000 units × 5 hours = 5,000 hours

   • Product Y:
     600 units × 10 hours = 6,000 hours

   • Total standard hours = 5,000 + 6,000 = 11,000 hours

2. Monthly Budgeted Hours:
   Yearly budgeted hours = 96,000
   Monthly budgeted hours = 96,000 ÷ 12 = 8,000 hours

3. Activity Ratio:

Information Booster:

• Activity Ratio is a part of efficiency and productivity analysis under standard costing.

• It helps assess how much of the budgeted productive capacity was utilized.

• A ratio above 100% means actual output exceeded the expected (budgeted) level, showing high capacity utilization.

• In this case, the company used 11,000 standard hours’ worth of output, but had only budgeted 8,000 hours for the month.

• This shows good performance, possibly due to higher efficiency or higher demand.

• Other related ratios include Efficiency Ratio and Capacity Ratio.

• High activity ratio contributes to favorable overhead variances in cost accounting.