Advantages of Labour Capacity utilization

Advantages of Labour Capacity utilization

Labour Capacity utilization ratio provides useful information for decision making. This concept provides information about free resources, extra resources.

1.    Free Resources for new activity

Labour capacity utilization ratio provides information about the availability of free resources, which can be utilized in other projects.

2.    Reducing Labour Cost

Labour extra capacity may be realized, if there is not alternate use of such capacity. Releasing extra resources will save the cost for the entity.

Example

Total Labour Hours available with Firm = 3000

Total Labour utilized during month = 2000

Calculate free resources?

Solution

Labour Capacity utilization Ratio =   Hour Spent by Labour   x 100

                                                      Total Available hour

= (2000/3000) x 100

=66.67%

80% of labour resources were utilized by the entity. It means that 20% of resources are free either to be utilized in other projects or may be terminated.