Input-output ratio is the ratio of raw materials going into production and raw standard material control of the actual output In industries where both raw material and finished products are capable of being measured in some units or quantities, e.g. foundries, cotton textile, jute textiles, chemical plants, oil refineries etc.
Input-output ratio helps in determining whether the usage of raw materials is favorable or adverse. If standard costing is used in such industries, input- output ratio is obtained as follows:
Input-output ratio = Standard cost of Actual quality /Standard cost of standard quality
With the help of this ratio, actual working of an industry can be assessed easily. A standard ratio must be set under the circumstances prevailing in the organization. Comparing the actual ratio with the standard ratio, the real performance can be judged. If the,actual ratio is higher, the performance is below standard, whereas if the actual ratio is lower than the standard, the performance is better than the standard.
Example : From the following figures, compute input-output ratio:
Input of raw cotton 1000 Kg
Output, say cloth consisting cotton of 900 Kg
So, input-output ratio = 900/1000=9/10=90%
That means by an input of 1000 Kg raw cotton a 90% of it could be yield as clothes, which equals 900kgs.