After studying this chapter you should be able to:
Understand the meaning of direct labour and indirect labour.
Explain the terms: time-study, motion study, job analysis and job evaluation.
Know the various records that are in use for recording attendance and time of workers.
Account for holiday pay, idle time and overtime in cost accounts.
Understand the factors associated with labour turnover.
Appraise the different methods of wage payment.
Understand the salient features of different incentive plans.
Ascertain the wage payable to workers under different methods of wage payment.
Understand the meaning of direct expenses.
Know the characteristics of direct expenses
Explain the meaning of certain important key terms.
Another important element of cost is “labour”. Labour may be said to be the key stone of an industrial concern. A reduction in labour cost would make any organization competitive. Till the advent of technological advancement, labour cost constituted the major portion of the total production cost. With the increase in mechanization, automation and the like, the importance of labour is not yet minimized. Indeed, mechanization also depends on highly-skilled labour. However, whatever may be the situation, the study on all related factors regarding labour has gained much importance because the productivity of all other resources depend to a greater extent on the productivity of an employee. Further, in our country, all SMEs (small- and medium-sized enterprises) are dependent upon labour alone for their entire operations. In this chapter, we are going to discuss the meaning of direct labour, accounting and controlling of the labour costs, labour turnover and all related factors on labour in detail.
The term “labour cost” represents wages paid to the workers employed in business organizations for producing goods or rendering services. It also represents the various payments made to an employee (worker), which are as follows:
Free or subsidized food, housing, transport to office, medical facilities, canteen, recreational activities and the like. Fringe benefits categorized under ‘c’ are generally treated as manufacturing overheads. The labour cost may be classified into:
Direct labour costs and
Indirect labour costs
Direct labour is “where employees are employed directly in making the product and their work can be readily identified in the process of conversion of raw materials into finished goods”.
The cost incurred on direct labour is known as “direct labour cost”. Direct labour is the time spent by workers in making the product. Their work can be readily identified in the process of conversion of raw materials into finished goods. All other labour is “indirect labour”. Direct labour can be easily identified and charged to a single costing unit.
This refers to the labour expended that does not alter the construction, composition or the condition of the product. Wages which cannot be readily identifiable with a job, process or operation are called “indirect labour cost”.
Examples:
General indirect labour like inspectors, supervisors, wages for maintenance workers, idle-time wages, overtime and the like.
Indirect labour is treated as part of the factory overhead. For the purpose of cost analysis and cost control, the need arises to distinguish between direct labour cost and indirect labour cost. The distinction should be made for:
Recording of time involves two purposes, namely, “time-keeping” and “time-booking”. It is essential for any type of workers–direct, indirect, casual, hired and outworkers.
Time-keeping is necessary to:
Time-booking is necessary for
When time-keeping and time-booking tally, record keeping will be perfect and accurate.
When a worker enters a factory, his attendance is recorded at the factory entrance. This function is performed by a person known as the “time-keeper” and at the place called “time-office”. The date and time of arrival are noted. This process of making the attendance of workers, the time of arrival and departure is known as “time-keeping”. The methods employed for time-keeping are clock card, check or disc.
As already explained, the underlying purpose of keeping time-records is to provide the necessary basic data for the payroll department to compute and prepare the pay roll. Time-keeping has the following aims:
To show the number of hours worked.
To disclose absence or tardiness.
To measure overtime and calculate extra pay.
To provide evidence of compliance with legal requirements.
To know the quantity of work done on each job
To know the cost of work done.
Wages paid on the piece-rate basis, for casual-labour-hired workers and the like would also require that attendance be recorded for the following reasons:
Recording of attendance is essential for ascertaining cost.
To compute overhead rates based on the labour rates.
To ensure discipline among the workers.
To avoid or reduce idle time.
To comply with the production schedule.
To calculate any financial benefits such as overtime, DA, bonus, PF, pension and the like.
To provide statistical data.
Workers may be deputed on different operations or jobs or processes. Time spent by each worker in activities entrusted with them, is an important factor. The process of recording the time spent in a working day on various operations, jobs or processes is known as “Time-Keeping”. Job cards, piece-work tickets, time-tickets are used for marking the time-in and the time-out in each activity where a worker works.
Objectives underlying time-booking are:
To ascertain the labour cost of various products and jobs.
To evaluate the labour performance.
To ascertain the time spent on each job.
To analyse idle time.
To apportion overheads.
To determine the overhead rates of absorbing the overhead expenses as per the labour-hour and machine-hour methods.
Maintenance of Labour Time-Records.
It is necessary to maintain the following records in a factory for the purpose of attendance, time spent on jobs, and the output of a worker:
This is used for recording the date and time of entry and departure of workers. Each worker is given a clock-card. At the time of entry or departure, this card is inserted in a specific place in the time-recording clock and the date and time of entry and departure would be punched on it. Now a days, time-clocks are connected to main-frame computers. This provides input data to the computer for preparation of daily attendance reports and payroll at the end of the wage period.
This document is used for recording the time spent by various workers on each job. When a job is commenced, a job number is allotted to it. The job card moves along with the job. The starting date and time of each operation is entered in it. When the job is completed, the total time spent by the worker is calculated. Materials consumed for each operation is entered in the job card (on the reverse side). It is also called “labour-cost card”.
This is used for recording the time spent by each worker in the factory. Where workers are to be paid on the basis of time, time-ticket will be much useful.
Payments to workers may be made either on the basis of time spent in the factory or on the number of units produced. Payment on the basis of time is known as ‘time rate’ whereas payment on the basis of number of units produced is known as “piece rate”.
When piece rate is adopted, a piece-work card is necessary. It shows the number of units produced each day by a worker. At the same time, it is also necessary to maintain time-ticket also in order to (i) apportion the overheads based on the time worked on each job and (ii) when payment of bonus or premium is made on the basis of the time saved, both the time taken and number of units produced are required.
Piece-work card has to be reconciled with the payroll on a continuous basis.
Metal discs are used. In metal discs, a worker’s employment number is inscribed. At the factory entrance gate, these discs are placed on a board. When a worker enters the factory, he picks up his disc and leaves it in a box kept exclusively for this. When the reporting time is over, the box will be removed. Workers arriving late have to put their discs in a separate box. After half-an-hour intervals the foreman replaces the boxes with the new ones. This is done in order to deduct the wages on a uniform basis for each step of half an hour.
Reconciliation of time-paid for as per time-keeping records and time-booked:
The time recorded at the factory gates with the time booked on jobs must be reconciled. If the time shown in the clock-card exceeds the time booked on different jobs, the difference is reported as “idle time.” On the other hand, if the total time booked exceeds the time recorded on the clock card, the difference is reported as “error”. This has to be corrected.
Reconciliation serves two purposes:
The payments made to labour have to be properly accounted for as it constitutes a significant portion of the total cost. Sufficient care to be taken from the stage of recruitment till they leave the firms. Proper care of labour will reduce the cost of production. Hence, the labour cost has to be controlled effectively for which the following departments will assist the task. They are:
Before dealing with the accounting of labour cost, one has to understand that the cost incurred on workers consists of a numbers of items. These may be broadly grouped into the following three heads:
The following items are included in this category:
In this category, the employer does not pay any money to its employees but extends benefits such as hospital facilities, subsidized food, subsidized or free transport and recreational facilities to employees. The employer bears the cost.
The benefits under this category are not paid each month but in future. For example, pension, gratuity, and so on.
Any payments made to both direct labour and indirect labour should be accounted for. For Direct labour (or direct workers), the following two different ways of accounting for labour cost are followed:
For Indirect Labour (Indirect Workers), both the costs of monetary as well as non-monetary benefits are charged to overheads.
Illustrations
Illustration 3.1
Model: Ascertainment of labour cost
From the following particulars, you are required to prepare a statement of labour cost showing the cost per day of 8 hours:
Solution
Step 1: All costs (monetary & non-monetary benefits) of items are to be added (i.e., (a) to (d)).
Step 2: The sum of costs will be the total cost.
Step 3: The sum total arrived at Step 2 is to be divided by no. of working hours (i.e., (f) 200 hrs).
Step 4: Labour cost per hour as calculated in Step 2 is to be multiplied by the no. of hours (i.e., 8) to determine the labour cost per day.
Statement of Labour Cost per month
Step 1: Add all the items: |
Rs. |
(a) Salary = |
5,000 |
(b) Leave salary (10% of Rs. 5,000) = |
500 |
(c) Employer’s contribution to PF – 10% on (a) + (b) i.e., 10% of (Rs. 5000 + Rs. 500) = |
550 |
(d) Employer’s contribution to ESI – 2% on (a) and (b) i.e., 2% (Rs. 5,000 + Rs. 500) = |
110 |
(e) Pro-rate expenses on the amenities to labour = |
20.50 |
Step 2: Total labour for the month (200 hrs) (Add Step 1 (a) to (e)) = |
6,180.50 |
Step 3: Labour cost per hour (Step 2 ÷ 200 hours Rs. 6,180 – 50 ÷ 200) = |
30.90 |
Step 4: Labour cost per day for 8 hrs: 8 hrs × Rs. 30.90 (as in Step3) = |
247.20. |
Illustration 3.2
Model: Labour cost to employer
From the above data, prepare a statement showing the cost per day of 8 hours of engaging a particular type of labour.
Solution
Labour cost per day to the employer is to be calculated.
Important Note
Employee’s contribution to PF or ESIC should not be taken into account for computation of labour cost.
Step 1: Basic calculation to be done:
In this problem, the calculation of working days in a month is to be calculated as under:
No. of working hours in a month (given in the problem) = 200 hours.
Working hours per day (given) = 8 hours.
Working days in a month (i) ÷ (ii) (200 ÷ 8 hrs) = 25 days.
Step 2: Preparation of statement of labour cost
Particulars | Rs. | Paise |
---|---|---|
(i) Step (a) Basic wages per day: . |
240 |
– |
Step (b) DA: per month: per day: Rs.10% of 6,000 . |
24 |
– |
Step (c) Leave salary: (15% of 240+24) (15% of 6,000+600÷25). |
39 |
60 |
Step (d) Employer’s contribution to ESIC: (5% of 6,000+600÷25). |
13 |
20 |
Step (e) Amenities to labour: (Rs. 50÷25days). |
2 |
00 |
(ii) Add I (a) to (e): Cost per man day |
318 |
80 |
Illustration 3.3
Model: Cash needed for wage payment
From the following particulars, find the amount required for cash payment of wages in a factory for a particular month:
Rs. | |
---|---|
Wages for normal hours worked |
3,00,000 |
Wages for overtime worked |
10,000 |
Leave wages |
8,000 |
Deduction for ESI |
6,000 |
Employee’s contribution to PF |
30,000 |
House rent to be recovered from 50 employees at Rs.100 per month. Employer also contributes an equal amount towards PF and ESIC.
Solution
Important Note
Employee’s contribution to PF and ESIC should not be taken into account while computing wages. First, the gross wages payable is determined. Then, from this, the employee’s contribution to PF, ESI and HRA to be recovered are to be deducted because such expenditure is not needed now by the management. That is, there is no actual disbursement.
The statement showing wages payable in cash is as follows:
Particulars | Rs. | Rs. |
---|---|---|
Step 1: (ADD:) |
|
|
Wages for normal working hours |
|
3,00,000 |
Wages for overtime worked |
|
10,000 |
Leave wages |
|
8,000 |
Step 2: Gross wages payable |
|
3,18,000 |
(Add : Step (i) to (iii)) |
|
|
Step 3: (Deductions:) |
|
|
Employee’s contribution to ESIC |
6,000 |
|
Employee’s contribution to PF |
30,000 |
|
House rent to be recovered from 50 employees @ Rs.100 p.m. |
5,000 |
41,000 |
Step 4: Amount required for cash payment of wages for a particular month Step 2 – Step (i + ii + iii) |
– |
2,77,000 |
Illustration 3.4
Model: Computation of normal and overtime wages
Calculate the normal wages and overtime wages payable to a workman from the following data:
Days | Hours Worked |
---|---|
Monday |
12 |
Tuesday |
10 |
Wednesday |
10 |
Thursday |
9 |
Friday |
8 |
Saturday |
4 |
|
53 |
Normal working hours: 8 hours per day.
On Saturday: 4 hours per day.
Normal rate: Rs. 2 per hour.
Overtime rate: Up to 9 hours in a day at single rate and over 9 hours a day at double rate
(or)
Up to 48 hours in a week at single rate and over 48 hours at double rate whichever is more beneficial to the workers.
[Madras University B.Com (modified)]
Solution
Following steps are to be followed:
Next, computation of total wages to be made:
STAGE I: Preparation of statement showing normal and overtime hours and wages
Out of 53 hours worked in a week:
44 hours are normal working hours
4 hours are overtime at single rate
5 hours are overtime at double rate
STAGE II: Computation of total wages on a day’s work basis
|
Rs. |
Step 1: Wages for normal working hours – (44 hours × Rs. 2) – |
88 |
Step 2: Wages for overtime wages: |
|
(i) At single rate: 4 hrs × Rs. 2: |
8 |
(ii) At Double rate: 5 hrs × Rs. 4: |
20 |
Step 3: Total Wages (Add 1 and 2 (i) & (ii)) |
116 |
STAGE III: Computation of total wages on a week’s work basis.
Step 1: Normal rare wages (44 + 4 hours) 48 hours × Rs. 2 = |
96 |
Step 2: Overtime wages: 5 hours × Rs. 4 = |
20 |
Step 3: Total wages (Add 1 and 2) |
116 |
Step 4: |
|
Decision: Total wages under both the approaches are same, that is, Rs. 116.
Hence, both methods are equally beneficial to the worker.
Illustration 3.5
Model: Allocation of wages
Rajeev, a worker in a manufacturing unit, is paid at the rate of Rs. 20 per hour. His working hours constitute 48 hours over 6 days a week. Time allowed per day as approved absence for personal needs and so on is 20 minutes.
Rajeev’s card for the week ended in a particular month shows that his time during the week is chargeable as follows:
Job No. X: 25 hours
Job No. Y: 15 hours
Job No. Z: 3 hours
The time unaccounted for is due to a power failure. You are required to show Rajeev’s wages for the week and how they would be dealt with in Cost Accounts?
Solution
STAGE I: Basic calculations:
Step 1: Computation of normal idle time:
Normal idle time: 6 days × 20 minutes each day
= 120 minutes
= 2 hours.
Step 2: Computation of abnormal idle time:
Abnormal idle time |
= |
Working hours in a week – Hours actually spent |
|
= |
48 hours – (X: 25 hrs + Y: 15 hrs + Z: 3 hrs + 2 hrs (normal idle time) |
|
= |
48 hrs – 45 hrs |
|
= |
3 hrs. |
Step 3: Normal idle-time (i.e., wages for approved absence) wages to be recovered as factory overhead:
Step 4: Abnormal idle time wages have to be treated as abnormal loss and charged to costing P&L A/c:
Wages for abnormal idle time:
STAGE II: Preparation of a statement showing allocation of worker’s wages
Illustration 3.6
Model: Worker’s earnings – Labour cost and its allocation to jobs
Calculate the earnings of worker P and Q for a month and allocate the earnings of each to job X, Y and Z.
P | Q | |
---|---|---|
(i) Basic wages |
Rs. 400 |
600 |
(ii) DA |
50% |
50% |
(iii) PF (on basic wages) |
10% |
10% |
(iv) ESI (on basic wages) |
2% |
2% |
(v) Overtime |
10 hrs |
– |
(vi) Idle time and leave |
– |
16 hrs |
The normal working hours for the month are 200 hrs. Overtime is paid at double the normal rate of wages plus DA. Employer’s contribution to ESIC and PF are at equal rate with an employee’s contribution. The month contains 25 working days and one paid holiday. Two workers were employed on Jobs X, Y and Z in the following proportions:
Overtime was done on Job Y.
[C.A. – (Inter) Modified]
Solution
STAGE I: Statement showing wages to be prepared:
Statement showing wages of workers P and Q
Particulars |
Workers | |
---|---|---|
P Rs. | Q Rs. | |
Step 1: Basic wages |
400 |
600 |
Step 2: DA (50% of basic) |
200 |
300 |
Step 3: Overtime: |
|
|
Step 4: Gross wages (1 + 2 + 3) |
690 |
900 |
Step 5: Deductions: (i) Employee’s contribution to PF is10% on basic wages |
||
Step 6: Net Wages Payable |
642 |
828 |
STAGE II: Computation of labour cost of workers
Particulars | P Rs. | Q Rs. |
---|---|---|
Step 1: Gross wages (Excluding overtime) |
600 |
900 |
Step 2: Employee’s contribution to PF is 10% on basic wages |
40 |
60 |
Step 3: Employee’s contribution to ESIC is 2% |
8 |
12 |
Step 4: Labour cost to employer (Add 1+ 2 + 3) |
648 |
972 |
Step 5: Normal working hours pm |
200 |
200 |
Step 6: Labour cost per hour (Step 4 ÷ Step 5) |
Rs. 3.24 |
Rs. 4.86 |
STAGE III: A statement showing allocation of labour cost to jobs
These type of workers are employed in the place of workers who are absent. To cope up with the production, some big firms employ such labour on a temporary basis. Usually, casual workers are employed by the personnel department who maintains a panel of casual workers. These workers should follow the same procedure that is adopted for regular workers. But their names are not entered in the pay roll of the firm. They are paid preferably on a daily basis. They are not entitled to any other benefit.
These workers perform work in their own premises. They use their own tools and implements. Payment is based on the work done. No other formalities are observed for them, that is, no system of time-keeping, time-booking and so on. They are not entered in the payroll of the firm. However, materials are issued from stores to such workers, for which a proper maintenance of records by the firms is essential.
Firms hire workers through contractors. Proper time-keeping records are maintained for them, for those engaged in the production directly. The firms make payment to the contractors, who, in turn, pay wages to the hired workers. To avoid overbilling by the contractors, the contractors’ bills are subject to verification by the firm and spot checking is usually carried out.
Meaning of Work Study
Work study is the study of work, namely human work. It consists of work measurement and method study. It is a technique for the improvement of productivity, where productivity is the relationship between output and input—usually expressed in quantitative terms. The end result of productivity improvement is lower unit cost.
Work study involves a systematic analysis of human work and the work of machines.
Objectives of work study are as follows:
Work study involves:
To quote Benjamin W. Niebel, “Motion study is the study of body motions used in performing an operation, with the thought of improving the operation, by eliminating unnecessary motions and simplifying necessary motions and then establishing the most favourable motion sequence for maximum efficiency”.
According to Benjamin W. Niebel, “Time study involves the technique of establishing an allowed time standard to perform a given task, based upon measurement of the work content of the prescribed method, with due allowance for fatigue and for personal and unavoidable delay”.
Time study determines
The following are the important steps involved in time and motion study:
Step 1 → Split the task into its elements.
Step 2 → Consult the basic time which has been previously set in respect of each element.
Step 3 → Conduct time and motion study where element-wise basic time does not exist.
Step 4 → A relaxation allowance is made at a certain percentage and added to the basic times, either individually or in totality. (This gives the work content of a job.)
Step 5 → Collect the technical data and values of human work, and then analyse and calculate the standard time for the task.
Method study is the systematic recording, analysing and examining the methods and movements involved in the performance of a task. Its aim is to improve efficiency in performing the task by getting rid of the unnecessary work, avoidable delays and other forms of waste.
Steps involved in method study are as follows:
Step 1 → Definition of area of study
Step 2 → Collection of information
Step 3 → Alternative methods—Consideration
Step 4 → Choosing best alternatives—Decision
Step 5 → Getting feedback and monitoring the progress
An organization requires people of different skills, grades, educational qualifications and experience to work in various levels. Due to these factors, the remuneration also has to vary from one level to another. Job evaluation is one of the solutions to this problem. But job analysis has to be carried out before job evaluation. Job analysis involves a proper appraisal of all jobs in an organization. Job analysis has been defined as,
“Job analysis is the process of determining, by observations and study, and reporting pertinent information relating to the nature of a specific job. It is the determination of the tasks which comprise the job and the skills, knowledge, abilities and responsibilities required of the workers for successful performance and which differentiates the job from all others”.
Obtaining detailed information from job analysis, job evaluation is carried out.
Job evaluation is a technique that equitably measures the relative worth of a job in a firm. It ranks jobs in a formal manner, measures the worth of a job and determines the remuneration that is suitable for each job. Using this technique, a wage structure is framed. This technique is used for determining the relative worth of a job.
One of the requirements of job evaluation is that a written description of the work operations in each job has to be done in a detailed manner.
There are a number of factors involved in each job. Some important factors are: (1) Skill; (2) Working conditions; (3) Responsibility; (4) Mental requirements; and (5) Physical requirements. Using this method, selection of few key jobs is done and a rating scale is made on the basis of evaluating and ranking of these jobs in accordance with these factors.
Under this method, job descriptions and specifications are recorded. Different jobs are compared after considering the educational requirements, skills, and so on. Jobs are ranked by comparing the said job with the same components of another job and placed in the ranked scale of jobs. It results in an arrangement of jobs in an hierarchical manner.
Splitting up of a job into various component factors like experience, physical requirements, skill and so on is the method. Points are allotted based on the relative weightage of these factors. Based on the points scored, the jobs are ranked. Finally, they are placed in a number of pre-determined grades. The relative worth of various jobs is determined by the comparison of point values. These point values are used for the fixation of scales of pay for each grade.
This is an improvement over the ranking method. Under this method, each grade has to be properly described. Based on the skill, educational qualifications, experience, type of work, responsibilities and so on, grades are fixed in advance. After establishing grades, a study is made for each job.
This is a technique used for determining each worker’s fair wages on the basis of his ability and performance. An employee is evaluated individually using factors such as skill, intelligence, discipline, integrity, responsibilities, personality, sense of judgement and so on.
Merit rating may be defined “as the systematic process of performance of an employee on the job in terms of job requirements”. The main object of merit rating is to rate the performance of an employee, for promotion, award of merit and so on.
This method of evaluation is carried on a systematic basis. The performance of an individual is assessed on the job on the basis of requirements of each job.
Basis of Distinction | Job Evaluation | Merit Rating |
---|---|---|
1. Objective |
To set up a rational wage and salary structure. |
To provide a scientific basis for determining fair wages for each worker. |
2. Rating |
It rates the jobs. |
It rates the employees. |
3. Assessment |
It is the assessment of the relative worth of jobs. |
It is the assessment of the relative worth of a man behind the jobs. |
4. Underlying purpose |
It simplifies the wage administration by evolving uniformity in the wages. |
It determines the fair rate of pay to the workers based on their ability & performance |
Remuneration has been defined as the reward for labour and services rendered. All business organizations should have a proper method of remuneration for their employees. The management’s aim should be to achieve high productivity. So, it has to devise a method of remuneration in such a way that it promotes goodwill and satisfaction among the labourers and at the same time, increasing the efficiency, economy, and productivity of firms too.
The principles underlying the selection of a remuneration method are:
This method rewards employees based on their output. This method is based on the principle “payment by results”. This is a method of paying wages which depends on the output or units produced by the worker. A fixed rate of wage is paid for each unit produced or number of operations completed or the job completed. Time taken to complete the work is immaterial, under this method.
The wage is calculated as under:
Wage = Number of units produced × Rate per unit.
There is generally a guaranteed hourly rates for workers who will not be able to attain the standard. It is necessary to pay minimum “day wages” in compliance with the statutory provisions of the Minimum Wages Act, 1948. This method of remuneration is suitable in the following cases:
ADVANTAGES:
DISADVANTAGES:
This method is used on the basis of the attendance of workers. A fixed rate of wage is paid hourly or daily or weekly on the basis of time spent on the shop floor (in production).
Under this method, the wage is calculated as follows:
Wage = Hourly rate × No. of hours (spent)
(or)
Daily wage rate × No. of days.
This method is suitable in the following cases:
ADVANTAGES:
DISADVANTAGES:
The motivation, the productivity and the satisfaction of workers are dependent upon the reward system. The incentive plans provide the needed reward to the workers directly in proportion to the work done. This reward induces him to earn more by producing more. Higher production reduces the unit cost of production. Incentive wage plans (incentive schemes) may be classified as follows:
Pre-Requisites of a Sound Incentive Scheme: A good incentive scheme should fulfil the following requirements:
ADVANTAGES:
DISADVANTAGES:
Under differential piece-rate method, more than one piece rate is determined. This method rewards workers on the basis of the output. Standards are set for each job. There are two piece rates. One is in respect of an average worker and another for an efficient worker. Efficient and inefficient workers are distinguished. There are many differential price-rate methods in vogue. Some are discussed as follows:
F.W. Taylor invented this scheme. Under this method, the standard output is determined on the basis of time and motion studies. No minimum wage is guaranteed. There is a wide gap between the higher piece rate and lower piece rate. Generous reward is given to workers who produce in excess of standard. Whereas, the workers who were unable to attain the standard set are penalized.
Time factor may also be taken into account. The efficiency of the worker is determined either (1) by comparing the standard time and the actually taken time or (2) by comparing the actual output and the standard output.
ADVANTAGE: Workers are motivated to increase production.
DISADVANTAGE: Calculations are complicated.
How this method operates?
Wages are determined by applying the above criteria.
Illustration 3.7
The wage rate is Rs. 0.80 per unit. You are required to determine: (i) the low piece rate and (ii) the high piece rate by using Taylor’s differential piece-rate method.
Solution
∴ Low piece rate = 83% × 0.80 (day wage rate: given)
= Re. 0.664 per unit.
= 175% × 0.80 + 50% × 0.80
= Rs. 1.40 + 0.40
= Rs. 1.80 per unit
This is a modification of Taylor’s scheme. Three gradual rates are determined instead of two levels in Taylor’s method. This method does not guarantee time rate. Each worker is paid according to his efficiency.
Efficiency level Piece rate
Up to 83% → Normal rate
83% to 100% → 110% of normal rate
Above 100% → 120% of normal rate
The worker who has performed below standard will not be penalized.
Illustration 3.8
Three workers A, B and C work in a factory. The following particulars apply to them:
Normal rate per hour |
= Re. 0.90. |
Piece rate |
= Re. 0.60 per unit. |
Standard |
= 4 units per hour. |
In a 40-hour week, the production of workers is as follows:
A: 100 units
B: 160 units
C: 240 units
You are required to calculate earning of workers as follows:
Solution
First, efficiency in terms of percentage is calculated for each worker as follows:
STAGE I: This may be computed in the following method.
Standard time (hours) is taken as a base
Standard: 4 units per hour
For Worker A: 100 units produced.
Time taken to produce hours (for 100 units).
For Worker hours (to produce 160 units).
For Worker hours (to produce 200 units).
Normal working hours = 40 hours/week (given).
A’s efficiency
B’s efficiency .
C’s efficiency .
On the basis of efficiency level, piece rate is to be determined for these two methods.
STAGE II:
I: Taylor’s System:
Under this system,
Step (i) Low piece rate = 83% of 0.60 = 0.50 (approx.)
Step (ii) High piece rate = 175% of 0.60 = 1.05.
Step (iii) For Worker A:
Output is 100 units – Efficiency is 62.5% – Hence, wages are to be calculated under low piece rate, that is, 0.50/unit.
∴ Wages = 100 units × 0.50 = Rs. 50.
Step (iv) For Worker B:
Output is 160 units – Efficiency is 100% – Hence, wages @ Rs. 1.05 is to be calculated.
∴ Wages = 160 units × Re. 1.05 = Rs. 168.
Step (v) For Worker C:
Output is 240 units - Efficiency is 150% - Hence, wages @ Rs. 1.05/unit is to be calculated.
∴ Wages = 240 units × Rs. 1.05 = Rs. 252.
STAGE II:
Merrick System:
Under this system, wages are calculated as follows:
Step 1 |
Efficiency level |
Piece rate |
|
Up to 83% |
Normal rate: 0.60/unit |
|
83% to 100% |
110% of normal rate: 110% of 0.60 = 0.66. |
|
Above 100% |
120% of normal rate: 120% of 0.60 = 0.72. |
Step 2 Wages for Worker A (efficiency 62.5%): 100 units × Normal rate = 100 × 0.60 = Rs. 60.
Step 3 Wages for Worker B (efficiency 100%): 160 units × 110% of Normal rate = 160 × 0.66 = Rs. 105.60.
Step 4 Wages for Worker C (efficiency 150%): 240 units × 120% of Normal rate = 240 × 0.72 = Rs. 172.80.
Under this method, time wages are guaranteed to every worker. Standards are set. Bonus is allowed up to 20% at 100% efficiency. (Standard Time → 100% efficiency). If a worker takes the standard time to perform the task, he is given wages for standard time and bonus of 20% on wages earned. If the worker completes the task in less than the standard time, he is given wages for the actual output and a bonus of 20% of the wages for standard time.
Illustration 3.9
You are required to compute the earnings of workers and labour cost per unit under Gantt Task Bonus Wage System from the following data:
Standard output – 20 units per hour
No. of hours in day – 8
Time rate – Rs. 10 per hour
Output of workers:
X – 120 units
Y – 180 units
Z – 220 units
Standard output per day – 160 units
Solution
First wage rate per unit (piece) is to be calculated.
Standard output = 20 units/hour
Time rate = Rs. 10/hour
*1∴ Wage rate per unit =
As per Gantt’s Task Bonus Plan,
*2Higher wage rate |
= |
(Lower) Standard rate + 20% Bonus |
|
= |
Re. 0.50 + 20% of 0.50 = Re. 0.60. |
Higher wage rate is allowed if the worker’s output exceeds the standard output, that is, 160 units.
Answers are shown in the following table:
Statement showing wages earned by the workers and the unit cost
Important Note
This method is a combination of Taylor’s differential piece-rate system and Halsey plan, where as time rate is guaranteed under Halsey plan alone. This system provides incentives at different levels of efficiency.
Generally, under a piece-rate system, it is the workers who gain or lose. But under the time-rate system, the employer will be benefited by the gains of efficient workers and the losses of inefficient workers.
Under the Premium Bonus Plans, the gains will be shared by the employer and the employees in agreed proportions. In addition to the minimum guaranteed wages, the efficient workers are rewarded bonus which is related to the time saved. Some of the important premium bonus plans are discussed as follows:
Main features of the system are as follows:
Levels of efficiency |
|
Piece rate |
Up to |
|
|
From 66⅔% to 90% |
→ |
Time rate + 10% as Bonus |
From 90% to 100% |
→ |
Time rate + 20% as Bonus |
Above 100% |
→ |
Time rate + 20% as Bonus + Additional bonus of 1% for every increase of 1% beyond 100% efficiency. |
ADVANTAGES:
DISADVANTAGES: Incentive allowed beyond the standard is not encouraging the efficient workers.
Illustration 3.10
From the following information, you are required to calculate the bonus and earnings under Emerson’s efficiency bonus plan:
Standard output in 10 hours: 50 units.
Actual output in 10 hours: 40 units.
Time rate: Re. 0.80 per hour.
If the actual output is 60 units, what will be the amount of bonus and earnings?
Solution
Step 1 → The formula to compute earnings under Emerson’s plan = Earnings = T×R + P (T× R).
Step 2 → Bonus under this scheme varies as follows:
Step 3 → Efficiency is to be computed.
|
|
|
Illustration 3.11
ABC Ltd is engaged in the manufacture of a particular product. The guaranteed daily wage rate is Rs. 12. The standard output fixed for the month is 600 units which represents 100% efficiency. Workers whose efficiency is below will not be paid any bonus. Bonus is payable in a graded scale after this level of efficiency as follows:
Efficiency |
Bonus |
90% |
10% |
100% |
20% |
There are two workers X and Y who have worked for 25 days in a month, and their output is 360 units and 600 units, respectively. You are required to compute the earnings of workers under Emerson’s plan.
Solution
Worker X | Worker Y | |
---|---|---|
|
||
Step 2 → Earnings |
|
Bonus has to be computed |
|
No Bonus 25 days × Rs. 12 =Rs. 300 |
|
|
|
= 300+60=360 |
|
Result: Labour cost per unit falls from Re. 0.833 to Re 0.60 per unit, as the productivity increases from 360 units to 600 units.
This system requires a very accurate time study and work study. Time wages are guaranteed. Under this scheme, each minute of standard time is called the Bedauxe Point or “B”. Each operation to be performed can be expressed as being so many B’s and the payment is made on the basis of number of B’s. Standing in the credit of the workers, to put in other words, ‘B’ means a standard work performed in a standard minute. One ‘B’ unit represents the amount of work—an average worker will do under normal level. Bonus is rewarded at 75% of B’s saved.
If the bonus is given to the extent of the value of the entire time saved, then this plan is known as 100% Bedauxe plan. If nothing is mentioned, it is 75% known as 75% Bedauxe plan.
ADVANTAGES:
DISADVANTAGES:
Illustration 3.12
The following are the particulars with respect to a job. You are required to calculate bonus and earnings under Bedaux Point Premium System.
Allowed time for the job: 720 B’s
Time taken: 600 B’s
Rate – Re 0.90 per hour.
Solution
T: Time Taken: |
|
|
R: Rate |
= |
0.90/hr |
P = 720 − 600 |
= |
120 B−s. |
Substituting the values in the formula we get,
|
|
|
|
|
10 × 0.90 + × 0.90 |
|
= |
Rs. 9 + 1.80 |
|
= |
Rs. 10.80. |
Under this scheme, the day wages are not guaranteed. Wages are calculated by the formula:
ADVANTAGE:
This scheme is suitable for less-efficient people.
DISADVANTAGE:
Efficiency is not encouraged.
Illustration 3.13
Hourly rate = Rs. 3.
Time allowed for a job = 10 hours.
Actual time taken by a worker:
A – 8 hours
B – 10 hours
C – 12 hours
You are required to calculate the wages of workers under Barth Premium Scheme and ascertain the labour cost per hour.
Solution
Substituting the values, we get the earnings for different workers, which is tabulated as follows:
Labour cost per hour is calculated as follows:
Total wages paid |
= Rs. 89.69. |
Total number of hours worked |
= 30. |
|
|
|
= Rs.2.989. |
Main features are as follows:
Earnings = Time taken × Hourly rate + of Time saved × Hourly rate
ADVANTAGES:
DISADVANTAGES:
Illustration 3.14
Normal hour rate |
: Rs. 5. |
Time allowed for a job |
: 8 hours. |
Time taken |
: 6 hours. |
You are required to compute the total earnings under Halsey Scheme.
Solution
Formula:
|
|
Time taken × Hourly rate + (Time saved) × Hourly rate |
|
|
(6 × Rs. 5) + (8 − 6) × 5 |
|
|
Rs. 30 + (2) × 5 |
|
= |
Rs. 30 + 5 |
|
= |
Rs. 35 |
Under this scheme, the bonus will be of the standard time saved, whereas it is 50% under Halsey plan. Except this, all the other aspects of these schemes Halsey and Halsey–Wair are similar to each other.
Total wages = Time taken × Hourly rate + (Time saved) × Hourly rate.
Illustration 3.15
Based on the same figures as in the previous illustration, calculate wages under the Halsey-Weir scheme.
Solution
Total wages = Time taken × Hourly rate + (Time saved) × Hourly rate
David Rowan introduced this scheme in 1901. Bonus is paid on the basis of time saved. Unlike a fixed percentage as in the schemes of Halsey and Halsey–Weir, proportionate basis is adopted under this scheme.
Formula:
In this method, the bonus may be calculated in two ways:
Irrespective of the way to be adopted, the result will be the same under both the following approaches:
Approach 1 :
Approach 2:
Illustration 3.16
Time Taken: 4 hours.
Time allowed: 5 hours.
Rate per hour: Rs. 5.
You are required to calculate total earnings under Rowan scheme.
Solution
Approach 1:
Formula:
Approach 2:
Illustration 3.17
In a factory, guaranteed wages at the rate of Rs. 2.40 per hour are paid in a 48-hour week. By time and motion study, it is estimated that to manufacture one unit of a particular product 40 minutes are taken. The time allowed is increased by 25%. During one week, a worker produced 240 units of a product. Calculate his wages under each of the following methods:
Solution
Earnings |
= |
Total hours × Rate per hour |
|
= |
48 × Rs. 2.40 |
|
= |
Rs. 115.20. |
1. Earnings = No. of units produced × Rate per unit
Rate per unit is to be calculated as follows:
Step (i) Time taken = 40 minutes.
Step (ii) Incentive allowance at
Step (iii) Standard time to produce one unit, Add (i) + (ii) = 50 minutes.
Step (iv) Rate per minute
Step (v) Rate per unit = 50 × 0.04 = Rs. 2.
(Step (iii) and Step (iv))
Step (vi) Now substitute the values in the formula (i)
Earnings = 240 units × Rs. 2 = Rs. 480
Formula:
where |
T |
= |
Total hours in a week; R = Rate per hour. |
|
S |
= |
Standard Time; T = Actual time taken. |
Standard time is calculated as follows:
Time taken to produce one unit = 50 minutes (Ref (b) – Step (iii))
Time taken to produce 240 units = 240 × 50 = 12,000 minutes
Or
Now, substituting the values in the formula, we get,
(iii) Rowan Premium Plan:
Under this method, workers are rewarded on the basis of their output. It is based on the principle: “Payment by Results Scheme”. The bonus offered in this scheme rises at a rapid rate. This scheme offers a high incentive. This scheme is suitable for supervisors.
There is no standard formula for this scheme. It varies from one industry to another. To understand the scheme, the graph of the function y = 0.8x2 may be used, where y = wages and , as follows:
This method of remuneration is used where the production system requires collective efforts, preferably by a group of workers. As such, individual efforts cannot be measured. Under this scheme, payment is made by results to all the workers in the group. In the initial stages, the production of group of employees is measured and the total bonus is calculated. After a certain period, the bonus is distributed equally or on the basis of an agreed proportion among the workers belonging to the group. The proportions are based on time rates or some previously agreed ratios.
ADVANTAGES:
DISADVANTAGES:
Some of the group-incentive plans are as follows:
Standard output is established to be attained for each department. This is stated in points or units. When the workers produce in excess of the standard, they are paid bonus in proportion with the increase. For instance, if the standard output is 50 units and the actual output is 70 units, the workers would receive a bonus equal to 40% of their basic wages (70 units ÷50 units × 100 = 140%). This is over and above their basic wages.
This is also known as “cost-saving–sharing plan”. In this method, the bonus to be paid to the workers is linked to the value added. Value added is the excess of sales value over the cost of purchase of materials and services. It includes the profit. Bonus will be a fixed proportion of the value added, which is calculated on a monthly basis.
Only two-thirds of the bonus earned is distributed. The remaining one-third is transferred to the reserve fund. When the actual performance falls below the standard, the amount kept in reserve fund is utilized. The standards are set on the basis of past trends.
This is similar to Rucker’s plan. The main difference is that it uses the ratio of direct labour cost of the sales value of production to compute the bonus.
Under this method, bonus depends on the reduction in labour cost when compared with the standard set. Bonus is computed as follows: Bonus is based on the 50% of direct labour costs saved. For example, if time allowed is 8 hours, time taken is 5 hours and base rate is Rs. 30 per hour, then the bonus will be = 50% × (8–5hrs) × Rs. 30 = Rs. 45.
Under this scheme, the bonus is linked with the savings in the expenses. The actual expenses are compared in total with the budgeted expenses in order to ascertain the savings in the expenses. By using a pre-determined percentage, the bonus is computed by multiplying the pre-determined percentage with the savings achieved actually.
Indirect workers should not be neglected for providing incentives. Their role is also equally important in enhancing the productivity. To attain the maximum efficiency, enlisting the cooperation of indirect workers is essential. But devising an incentive scheme for indirect workers is not easy. The main reason is that the output of indirect workers cannot be quantified accurately. Their contribution to attain a higher level of performance cannot be underestimated.
Besides these basic principles, incentive plan should be devised for certain category of indirect workers. They are:
Besides direct incentives, workers are given some indirect incentives to attain the maximum productivity. Indirect incentives are of two categories: (i) Monetary incentives and (ii) Non-monetary incentives.
Profit sharing has been defined as, “an agreement freely entered into, by which an employee receives a share, fixed in advance, of the profits”. Or it may be said, “where an employer rewards its employees with special current or deferred sums on the basis of overall prosperity of the business – it is known as profit sharing”. Such amount would be paid over and above his regular pay. The profit percentage is predetermined. Profit-sharing scheme should comply with the statutory provisions envisaged in the payment of Bonus Act, 1935. Profit-sharing plans may be classified under the following categories:
ADVANTAGES:
DISADVANTAGES:
Instead of cash, labour will be given a share of profit in the form of shares. This type of profit sharing is known as “co-partnership”. Under this scheme, the workers of the firm will get a part of the capital and profits accruing. But these shares may or may not carry the voting rights. In case they do not have such rights, employees may feel inscure because of the restrictions imposed on them.
ADVANTAGES:
DISADVANTAGES:
This type of incentive is given to all employees. These are provided entirely at the cost of the management (free) or the employees may be asked to contribute towards such incentives at a very low margin. In fact, some of the incentives are rewarded to comply with the statutory regulations. Strictly speaking, these incentives are not provided for any kind of super performance of the workers. Some of such incentives are: (i) PF contribution; (ii) Gratuity; (iii) Pension; (iv) Protective measures to workers; (v) Medical facilities; (vi) Subsidized services; (vii) Leave-travel concessions; (viii) all welfare measures; (ix) housing facilities; and so on.
ADVANTAGES:
Employees may join and leave an organization for a change in job for any of the following reasons:
In such cases, the leavers have to be replaced by new employees. Due to this, there is a change in the composition of labour force. Labour turnover may be defined as the rate of change in the labour force in an organization during the specified period. The change in the composition of labour force may also arise on account of death, retirement, resignation, and so on. This is measured by dividing the number of workers leaving during the period by the average total number of employees.
Example:
50 employees leave an organization in a year and the average total number of employees is 500. Then the
Here, the average figure means simple average. Simple average is the average of the number of employees at the beginning and at the end of the specified period.
Various causes of labour turnover may be grouped under two heads:
These causes can be avoided. The management may take proper measures to minimize or eliminate these causes to avoid the labour turnover. The management has to undertake cost–benefit analysis.
Avoidable causes include the following:
Under this category, the causes for labour turnover cannot be minimized or eliminated by the management. These include:
Labour turnover results in an increased cost of production which is due to the following reasons:
(x) |
Increased cost of selection, training and so on of new workers. |
(xi) |
Increase in cost of scrap and defectives. |
(xii) |
Decrease in the overall production on account of time lost between turnover and recruitment. |
(xiii) |
Increase in the cost of plant maintenance due to mishandling of equipments by new workers. |
There are various methods in use for measuring the labour turnover. They are as follows:
(Accession = Nos. at the end of period - Nos. at the beginning + Nos. that have left during the period)
Formula:
or
Net labour-turnover-rate method:
Formula:
Formula:
A low turnover ratio is desirable. But a very low turnover ratio is not desirable. It indicates the existence of inefficient workers. It reflects the scenario—absence of flexibility. Flexibility may be related to redeployment of workers, change in the ratio of experienced workers to the total number of workers and so on.
A high turnover ratio indicates that the employees are leaving an organization rapidly.
Selection of a suitable method for computing labour-turnover ratio is importance. Once a method is chosen, it should be followed consistently to facilitate the comparison of ratios.
Illustration 3.18
From the following data given by the personnel department, calculate the labour-turnover rate by applying
Number of workers on the pay roll:
At the beginning of the month: 2,700
At the end of the month: 3,300
During the month, 30 workers left, 120 workers were discharged and 450 workers were recruited. Of these, 75 workers are recruited in the vacancies of those leaving while the rest were engaged for an expansion scheme.
[I.C.W.A. (Modified)]
Solution
Step 1: Basic figures that are necessary for computation of labour-turnover ratio are to be found out as follows:
NOTE: Separations include:
In this problem, workers left were given as 30 and workers discharged were given as 120.
Hence, number of separations = 30+120 = 150.
NOTE: Students should exercise caution while dealing with replacements:
(I) Computation of labour turnover by applying separation method:
(II) Computation of labour turnover by applying replacement method:
NOTE: This is replacement method. Hence, the number of replacements include only those who are recruited in vacancies. This ignores the recruitment for expansion.
(III) Computation of labour turnover by applying flux method:
NOTE: This is flux method. Hence replacement includes all the workers who are recruited.
Illustration 3.19
The cost accountant of a company has computed labour-turnover rates for the period that ended on 31 December 2009 as 20%, 10% and 5% under flux method, replacement method and separation method, respectively. If the number of workers replaced during that period is 40, you are required to find out the number of
Solution
First, the average number of workers on the roll has to be found out, because this figure is necessary irrespective of the method to be applied to compute the labour-turnover rate.
(or)
10 × Average No. of workers on roll = 40 × 100
Average No. of workers on Roll =
Labour-turnover ratio (separation method)
(or) 100 × No. of separations = 5 × 400.
No. of separations
∴ No of workers left and discharged = 20.
Labour turnover (Flux method)
∴ No. of workers recruited and joined (including replacement) = 60.
One should realize that labour turnover too has its costs. These costs of labour turnover is grouped under two heads as follows:
Preventive costs, as the very name suggests, are incurred in order to retain the employees. They prevent the employees from leaving the organization. These costs include the following:
These costs are incurred in respect of new employees who are recruited in the place of employees who have left the organization. Such employees will have to be recruited, inducted, trained and absorbed into the organization. Costs incurred for recruitment and training and production loss, scrap, defective and so on are included in this type of replacement costs. They are:
The costs incurred under both the categories, as explained above, are added together and the cost of the labour turnover is determined by using the formula:
Cost of labour turnover is an indirect cost. Hence, it should be treated as an overhead. Replacement costs should be charged to products. Preventive costs should be charged to the departments based on the strength of the employees.
Illustration 3.20
From the following data relating to a firm, you are required to calculate (a) labour-turnover ratio and (b) profit foregone due to labour turnover:
Rs. | |
---|---|
(a) Sales value |
1,00,000 |
(b) Variable costs: |
|
Direct material |
40,000 |
Direct wages |
21,000 |
Variable overheads |
20.000 |
(a) – (b): Contribution |
19,000 |
Less: Factory overhead |
10,000 |
Profit before tax |
9,000 |
The direct labour hours worked during the period were 3,500. This included 1,500 hours for newly recruited workers, who were undergoing training and whose productive time was only There was some delay in finding new employees to replace the workers who had left and the time lost was 500 hours. Costs incurred to replace the leavers were as follows:
Rs. | |
---|---|
Cost of recruitment |
1,500 |
Cost of selection |
2,500 |
Cost of training |
3,000 |
Cost of separation |
2,000 |
Solution
The figures needed to compute the profit foregone which has to be calculated in the following way:
Step 1: Computation of labour-turnover ratio:
As figures are given in direct-labour hours, the same can be used and the labour-turnover ratio is calculated as follows:
Step 2: Productive work hours is calculated as:
Unproductive time:
Training hours: 1500 hours
∴ |
|
∴ Productive work hours |
Step 3: Time lost is calculated as follows:
(i) |
Training hours: |
500 hours |
(ii) |
Add: Delay in recruitment: |
500 hours |
|
∴ Time lost: |
Step 4: Direct wage rate per hour is calculated as follows:
Formula: Direct wage rate per hour
Step 5: Contribution foregone due to lost hours is calculated as follows: Contribution
Formula: Contribution per productive hour
∴ Contribution foregone due to lost hours |
= |
Rs. 5.4286 × 1,000 hours (Ref: Step3) |
|
= |
Rs. 5429 |
Step 6: Computation of profit foregone due to labour turnover:
|
|
Rs. |
Step (a) – |
Cost of labour turnover [Add: All replacement costs given as separation + Recruitment + Selection + Training] 2,000 + 1,500 + 2,500 + 3,000. |
= 9,000 |
Step (b) – |
Cost of training hours 500 hours × Rs. 6 (Ref Step 4) |
= 3,000 |
Step (c) – |
Contribution foregone due to lost hours:1000 hrs × 5.4286 (Ref: Step 5) |
= 5,429 |
Step (d) – |
Profit foregone due to Labour turnover [Add = Step (a) + (b) + (c)] |
Idle time represents the difference between the time for which the workers are paid and the time spent on the job. Idle time is loss of productivity time. The loss of time for which the employer pays for which no benefit is derived is known as idle time. Idle time represents the time during which the worker was idle but wages are paid for such idle time.
The causes of idle time may be grouped under the following broad categories:
(i) According to controllability category, the causes for idle time are: (a) normal idle items that occur on account of unavoidable causes and (b) abnormal idle time that occurs due to avoidable causes.
These may be controlled if proper planning is made in advance in anticipation of such causes. Proper remedial measures may be undertaken to rectify such causes.
The measures that should be undertaken to control idle time are as follows:
Illustration 3.21
A worker is paid Re.1. per hour and the 5 days of working week contains 40 hours. The daily allowance for approved absence from his place of work, maintenance of machine and so on is 6 minutes and his job card shows that his time chargeable during the week to various jobs is as follows:
Job No. 102 18 hours
Job No. 110 12 hours
Job No. 125 7 hours
The unaccounted time is caused by a power failure. Show how his wages for the week would be dealt with in cost accounts.
[B.Com (Hons) Delhi – Modified]
Solution
6 minutes per day. For 5 days = 6 × 5 = 30 minutes = hour.
Add all working hours + idle time (normal): (Job No. 102 = 18 hrs + Job No. 110 = 12 hrs + Job No. 125 = Rs.7) + hour (as above) = 37 hrs.
Total working hours = 40 hrs (given).
Abnormal idle time
∴ Unaccounted time due to power failure
|
|
Rs. |
Step 1: |
(A) Wages payable for the week = 40 hrs × Re 1 |
= 40 |
Step 2: |
(B) Allocation of wages: |
|
|
(i) Chargeable to Job No. 102 = 18 hrs × Re 1 |
= 18 |
|
(ii) Chargeable to Job No. 110 = 12 hrs × Re 1 |
= 12 |
|
(iii) Chargeable to Job No. 125 = 7 hrs × Re 1 |
= 7 |
|
(iv) Normal idle time: (Ref: (i): hr × Re 1) |
|
|
(v) Abnormal idle time (Ref: (ii): × Re 1) |
|
Step 3: |
(C) Total: [Add Step (2) (i) to (v)] (A) and (C) will have to tally. |
Owing to the exigencies of situation, the workers may have to work beyond the normal working hours. The Factories Act and the Shops and Establishment Act, 1949 prescribes normal working hours, defines overtime, the rate of overtime and the maximum hours of overtime. Accordingly, a worker working more than 8 hours a day or 48 hours a week in a factory has to be paid double the wages for the extra hours he has worked. This is known as “overtime wages”.
Overtime consists of two parts: normal wages and additional wages. Normal wage denotes wages paid at a normal wage rate. Additional wage represents wages paid for extra time. Additional wages for extra time is known as “overtime premium”.
Overtime results in:
How overtime may be controlled?
Normal overtime wages are to be treated as direct labour cost. They are charged to respective jobs, orders or processes. The treatment of overtime premium will be as follows:
Illustration 3.22
An analysis of the time card of a worker on a machine shows that of the total 40 hours he worked, 38 hours (including 3 hours’ overtime) was on production and that 2 hours was the idle time due to the machine breakdown. The rate of work is Rs. 1.50 per hour and overtime is paid 100% extra.
You are required to allocate the total wages paid to the worker between direct and indirect labour.
Solution
First the total wages paid to the worker is calculated and then allocation of wages to direct and indirect workers have to be shown.
I: Total wages paid to the worker:
Rs. | |
---|---|
(i) Total hours × rate/hour (40 × Rs. 1.50) |
= 60.00 |
(ii) Add: Overtime allowance (3 hours × Rs. 1.50 + (100% of 1.50)) |
= 9.00 |
(iii) Total wages paid to the worker |
= 69.00 |
II: Allocation of wages:
(i) |
Time spent on production: This is direct (38 hours × Rs. 1.50) = |
57.00 |
(ii) |
Overtime allowance: This is indirect (3 hours × Rs. 1.50 + 100% of 1.50) 3 × 3 = |
9.00 |
(iii) |
Abnormal idle time: (break down) (2 hours × Rs. 1.50) = |
3.00 |
|
|
69.00 |
Additional Illustrations
Model-Wise
Illustration 3.23
Model: Group-Piece Rate
In an assembly shop of a factory, 4 workers P, Q, R and S work together as a team and are paid on group-piece rate. They also work individually on day-rate jobs. In a 48-hour week, the following hours have been spent by them om group-piece work:
P – 40 hours
Q – 25 hours
R – 20 hours
S – 15 hours
The balance of the time has been booked by each worker on day-work jobs. Their hourly rates are:
P – Re. 0.50
Q – Re. 0.80
R – Rs. 1.50
S – Rs. 2.00
The group-piece rate is Rs. 2 per unit and the team has produced 100 units. Calculate the gross-weekly earning of each workman taking into consideration that each one is entitled to a DA of Rs. 35 per week.
Solution
Step 1 → Basic time earnings for all the workers is calculated as follows:
Worker | Wages (No. of Hours × Hourly Rate) |
---|---|
P |
(40 hours × 0.50) – Rs. 20 |
Q |
(25 hours × 0.80) – Rs. 20 |
R |
(20 hours × 1.50) – Rs. 30 |
S |
(15 hours × 2.00) – Rs. 30 |
Step 2 → Ratio is Rs. 20 : Rs. 20 : Rs. 30 : Rs. 30
2 : 2 : 3 : 3.
On the basis of this ratio, the total group-piece wages will be apportioned among the workers.
Step 3 → Group-piece wages = No. of units × Rate per unit
Step 4 → Day work will be calculated as follows:
P: (Total hours – Group hours): (48 hours – 40 hours) = 8 hrs × 0.50 = 4.00.
Q: (48 - 25 hrs) : 23 hrs × 0.80 = Rs. 18.40.
R: (48 - 20 hrs) : 28 hrs × 1.50 = Rs. 42.00.
S: (48 - 15 hrs) : 33 hrs × 2.00 = Rs. 66.00.
Step 5 → These figures are tabulated with DA and added together, we get the desired results:
Illustration 3.24
Model: Balance of debt system
From the following data, calculate the amount of wages payable to Mr Alex for each of the two days of week under “Balance of Debt system”.
Standard rate per hour |
Rs. 5. |
Standard rate per piece |
Rs. 7. |
Hours of work in a day: |
8 hr. |
Mr. Alex produces 5 pieces on the first and 6 pieces on the second day.
Solution
Step 1: Wages payable on the first day is calculated as follows:
(i) |
Wages payable as per piece-wage system: |
Rs. |
|
(No. of pieces produced × Rate per unit) |
|
|
= 5 × Rs. 7 |
35 |
(ii) |
Wages payable as per time-wage system: |
|
|
(No. of hours × Hourly rate) |
|
|
= 8 × Rs. 5 |
40 |
Step 2: Payment
Under this system, Mr. Alex will be paid based on time-wage system. As per this system he gets Rs. 40, whereas he gets Rs. 35 only under the piece-wage system. Rs. 5 is higher in the time-wage system than in the piece-wage system. However, he will be paid Rs. 40 and the excess of Rs. 5 is to be deemed as a debt due by Alex to the firm. This excess amount is to be recoverable from his future earnings, when his piece wage will exceed the time wage.
Step 3: Wages payable on Day 2
(i) |
Wages payable as per piece-wage system: |
Rs. |
|
6 pieces × Rs. 7 |
42 |
(ii) |
Wages payable as per time-wage system: |
|
|
8 hrs × Rs. 5 |
40 |
Step 4: Payment
On the second day, his piece wage exceeds by Rs. 2 (Rs. 42 – Rs. 40). This Rs. 2 will be adjusted against the debt Rs. 5 incurred on the first day. So, Mr. Alex will be paid Rs. 40 instead of Rs. 42. But, he still owes to the firm Rs. 3 (Rs. 5 – Rs. 2). This will get adjusted in future.
Illustration 3.25
Model: Comparison of Halsey and Rowan plans
You are required to calculate the earnings of a worker under (a) Halsey plan and (b) Rowan plan from the following particulars:
Hourly rate of wages guaranteed at Re 1.00 per hour.
Standard time for producing one Gel pen: 4 hours.
Actual time taken to produce 100 Gel pens: 360 hours.
[C.A. Inter – Modified]
Solution
Basic data to compute earnings are calculated first:
Step 1 → Time allowed to produce one Gel pen = 4 hrs.
∴Time allowed to produce 100 pens = 100 × 4 = 400 hrs.
Step 2 → Time saved is to be computed:
(i) |
Standard time to produce 100 pens (as per Step 1) |
= 400 hrs. |
(ii) |
Less: Actual time taken to produce 100 pens |
= 360 hrs. |
(iii) |
Time saved |
Step 3 → Earnings of a worker under Halsey plan is computed as follows:
= 360 hrs × Re 1 + × 40 (Step 2) hrs × Re 1.
= Rs. 360 + Rs. 20
= Rs. 380
Step 4 → Computation of earnings under Rowan plan:
|
|
360 hrs × Re 1 + |
|
= |
Rs. 360 + Rs. 90 |
|
= |
Rs. 450 |
Step 5 → Result → The worker earns more under Rowan plan than under Halsey plan, according to the present level of parameters.
Illustration 3.26
Model: Comparison of straight piece-rate and Merrick’s multiple piece-rate system
Calculate the earnings of workers X, Y and Z under straight piece-rate system and Merrick’s multiple piece-rate system from the following particulars:
Normal rate per hour Rs. 6.
Standard time per unit: 2 minutes.
Output per day is as follows:
Worker X: 200 units.
Worker Y: 220 units.
Worker Z: 360 units.
Working hours per day are 8.
[C.A. (Inter) – Modified]
Solution
First, the basic data are calculated as follows:
Step 1: Normal wage rate per unit is computed.
(2 minutes/unit ∴ For 60 minutes):
Step 2: Level of efficiency of workers is found out as:
Step 3: Wages under straight piece-rate system are as follows:
Worker X: |
200 units × 0.20/unit: |
Rs. 40.00 |
Worker Y: |
220 units × 0.20/unit: |
Rs. 44.00 |
Worker Z: |
360 units × 0.20/unit: |
Rs. 72.00 |
Step 4: Wage rate applicable under Merrick’s multiple piece-rate system are:
|
|
Re |
(i) |
Up to 83% efficiency = Ordinary piece rate |
0.20 |
(ii) |
From 83% to 100% = 110% of ordinary piece rate: |
0.22 |
(iii) |
Above 100% = 120% of ordinary piece rate: |
0.24 |
Step 5: This rate has to be applied in the computation of wages under Merrick’s system, which is shown as follows:
Illustration 3.27
In a factory Vas and Dev produce the same product using the same input of the same material and at the same normal wage rate.
Bonus is paid to both of them in the form of normal wage time adjusted by the proportion which time saved bears to the standard time for the completion of the product. The time allotted to the product is 50 hours. Vas takes 30 hours and Dev takes 40 hours to produce the product. The Factory overhead rate is Rs. 24 per hour. The factory cost of the product for Vas is Rs. 9,300 and for Dev is Rs. 9,840.
You are required to calculate: (a) normal wage rate, (b) cost of material used for the product and (c) the input of material if the unit material cost is Rs. 40.
[B.Com (Hons) Delhi – Modified]
Solution
Step 1: Cost of material and normal rate of wages are not given in the problem. Let X be the cost of material and Y be the normal rate of wages per hour. Based on X and Y, the factory cost of workmen is calculated as follows:
Step 2: Factory cost of workman Vas.
Step 3: Factory cost of workman Vas.
Step 4: We get from Step (3) and Step (4) the following two equations:
|
X + 42Y + 720 = Rs. 9,300 |
(1) |
|
X + 48Y + 960 = Rs. 9, 840 |
(2) |
(1) – (2), i.e., Subtracting equation (1) from equation (2), we get
|
6Y + 240 |
= |
540 |
or |
6Y |
= |
540 − 240 = 300 |
|
|
|
Substituting the value of Y in equation (1), we get
|
X + 42 × 50 + 720 |
= |
9,300 |
or |
X + 2,100 + 720 |
= |
9,300 |
|
X |
= |
9,300 − 2,820 |
|
|
= |
6,480 |
Step 5:
Illustration 3.28
Model: Total labour cost
An article passes through five-hand operation as follows:
The factory works 40 hours a week and the production target is 450 dozens per week. Prepare a statement showing for each operation and in total the number of operators required, cost per dozen and the total cost per week to produce the total targeted output.
[C.A. Inter – Modified]
Solution
First, number of operators required for each operation is calculated as follows:
Simple formula to be used is:
Total no.of workers
(Production is given in dozen. It has to be multiplied by 12 to know the number of articles)
Operation No.
(Number of workers rounded off to the nearest number)
Based on these figures, the labour cost has to be calculated as follows:
Illustration 3.29
Model: Labour-turnover rate
The following information relates to the personnel department of a factory for the month of June 2009:
No. of workers on 1 June 2009 |
900 |
No. of workers on 30 June 2009 |
1,100 |
No. of workers who quit the factory in June |
20 |
30 |
|
No. of workers engaged in June (including 100 on account of expansion scheme) |
150 |
You are required to calculate the labour-turnover rate and the equal annual rate under the different methods.
[B.Com (Modified)]
Solution
(i) Write the formula:
Important Note
In this problem, it is shown that 100 workers are employed an account of expansion, that is, a new business. Those 100 workers should not be included in the replacement category. As such only 50 workers are to be shown as number of replacements (150–100).
(ii) Substituting the values in the formula we get,
Equivalent annual turnover rate: .
Equivalent annual turnover rate
Equivalent annual turnover rate
Illustration 3.30
Model: Profit foregone due to labour turnover
The management of a company wants to have an idea of the profit lost/foregone as a result of labour turnover last year.
Last year, the sales accounted to Rs. 3,30,000 and the Ratio was 20%. The total number of actual hours worked by the direct labour was 17,250. As a result of the delays by the personnel department in filling the vacancies due to labour turnover, 3,750 potential productive hours were lost. The actual direct labour hours included were 1,500 hours attributable to training new recruits, out of which half of the hours were productive. The costs incurred consequent upon labour turnover revealed on analysis the following:
Rs. | |
---|---|
Settlement cost due to leaving |
2,500 |
Recruitment costs |
1,150 |
Selection costs |
950 |
Training costs |
1,400 |
Assuming that the potential production lost due to labour turnover could have been sold at the prevailing prices, ascertain the profit foregone last year on account of labour turnover.
Solution
The basic figures that are required to compute the profit lost will be calculated one by one as follows:
Step 1: Actual productive hours |
= |
Actual hours worked – Unproductive training hours |
|
= |
17,250 hrs (given) − 50% of 1,500 (given) |
|
= |
17,250 − 750 |
|
= |
16,500 hours. |
Step 2: Sales per productive hour
Step 3: Potential productive hours lost 3,750 hrs (given).
Step 4: Sales foregone |
= |
3,750 hrs (Step 3) × Rs. 20 (Ref. Step 2) |
|
= |
Rs. 75,000. |
Step 5: Contribution foregone = Sales foregone × p/v ratio
(P/v ratio concept is explained in detail in the chapter Marginal Costing – Cost Volume Profit analysis. Students may refer this chapter included in the book.)
Step 6: Computation of profit foregone:
Rs. | Rs. | |
---|---|---|
Step A → Contribution Foregone (Ref: Step 5) |
|
15,000 |
Step B → Add: |
|
|
(i) Settlement cost |
2,500 |
|
(ii) Recruitment cost |
1,150 |
|
(iii) Selection cost |
950 |
|
(iv) Training cost |
1,400 |
6,000 |
Step C → Total profit foregone (Step A + Step B) |
|
21,000 |
Illustration 3.31
Model: Overtime wages
You are required to calculate the normal and overtime wages payable to a workman from the following data
Days | Hours Worked |
---|---|
Monday |
10 hrs |
Tuesday |
8 hrs |
Wednesday |
10 hrs |
Thursday |
9 hrs |
Friday |
11 hrs |
Saturday |
4 hrs |
Normal working hours |
8 hrs per day |
Normal rate |
Rs. 1.50 per hour |
Overtime rate |
Up to 9 hours in a day at single rate and over 9 hrs a day at double rate. |
|
(or) |
|
Up to 48 hours at single rate and over 48 hours at double rate, whichever is more beneficial to the workman. |
[B.Com – Madras University – 2008]
Solution
Important Note
In the question, two options are given in respect of overtime. Whatever option is adopted, the overtime wages will be the same. Hence, students may choose any basis to compute overtime.
First, the number of hours worked, normal, overtime at single rate and overtime at double rate are to be worked out as follows:
On this basis, the wages will be calculated as follows:
|
|
Rs. |
(i) |
Normal wages for 44 hours (Ref. Col 3 above) at the rate of Rs. 1.50 (given) |
= 66 |
(ii) |
Overtime wages: |
|
|
(a) At single rate (Rs. 1.50 per hour) for 4 hours (Ref: Column 4 in the above table) |
= 6 |
|
(b) At double rate (Rs. 1.50 × 2 = Rs. 3) for 4 hours (Ref: Column 5 in the above table) |
= 12 |
(iii) |
Total wages: (Add I + ii (a) + ii (b)) |
Illustration 3.32
Model: Wages for financial books and department labour-hour cost
A factory department has 90 workers who are paid on an average of Rs. 35 per week (48 hours), DA per month (208 hours) of Rs. 260, PF deduction is @ 8% on gross, of which is for family pension fund and half the number of workers with ESI being at Rs. 2.50 each. The employer contributes an equivalent amount. The company gives only the minimum bonus of and allows a statutory leave of 2 weeks per year with pay. You are required to show the weekly-wage summary for the financial books and the department labour hour costs for job costing.
[M.Com – Annamalai University]
Solution
The basic data needed are to be worked out as follows:
*1. Dearness allowance rate per week:
*32. Leave pay per week:
Family pension is applicable to half of the workers only. So, calculations are to be made accordingly. For the balance (other half) workers, total PF rate is used. Bonus will not be included to calculate the leave pay. Provision is to be made for the estimated bonus at the time of preparation of final accounts. Bonus payment is in accordance with payment of Bonus Act, 1965.
STAGE I: Now, the calculation of weekly-wage summary for financial books is made as follows:
Rs. | Rs. | |
---|---|---|
Step 1: Wages: No. of workers × Wage rate = 90 × Rs. 35. |
– |
3,150 |
Step 2: DA: No. of workers × DA = 90 × Rs. 60*1 |
– |
5,400 |
*2Step 3: Gross earnings (Step 1+ Step 2). |
|
8,550 |
Step 4: Less: Eligible deductions |
|
|
(i) P.F.: |
292 |
|
(ii) P.F.: 8% × 50% of 8,550. |
342 |
|
(iii) Family pension: of 50% of 8,550. |
50 |
|
(iv) ESI − 90 workers × Rs. 2.50. |
225 |
909 |
Step 5: Net earnings for the week. (Step 3 − Step 4) (Total of all) |
|
7,641 |
STAGE II:
Rs. | Rs. | |
---|---|---|
Step 1: Gross earnings (Ref. Step 3 in the above table) |
|
8,550.00 |
Step 2: Add: |
|
|
(i) PF employer’s contribution (@ 8% for Rs. 8,550. |
684 |
|
(ii) ESI contribution (employer’s) = (90 × Rs. 2.50). |
225 |
|
*3iii) Leave pay |
328.85 |
|
(iv) Minimum bonus of Rs. 8,550 |
|
|
Step 3: Labour cost per week (Add Step 1 + Step 2) |
|
10,500.35 |
Step 4: Labour hours per week: 90 × 48 hr |
|
4,320 hr |
Step 5: Labour cost per hour = |
|
|
PROFESSIONAL COURSE STUDENTS
Illustration 3.33
Model: Cost of conversion and Computation of saving
A factory undertakes production to customer’s satisfaction. Worker A was entrusted with the production of 200 units of product AA’ in 100 hours and worker B was asked to produce 100 units of product BB’ in 200 hours. The ruling rate of wages is Rs. 5 per hour which is guaranteed irrespective of the standard of efficiency. If the work given is finished within the time allotted, the worker gets Rs. 6 per hour for the time taken. Time saved is rewarded by an incentive bonus of 50% of wages earned per hour. A completes the job in 80 hours and B in 120 hours.
Assuming that the prevailing overhead rate is Rs. 10 per labour hour, indicate the impact of the system of wages coupled with the incentive scheme on the profits of the company when compared to a straight piece rate at Rs. 6 per hour. The fixation of hourly rates is understood to provide for a saving of 20% of the time fixed when the work is carried out by an efficient worker under normal conditions.
Pass your comments on the basis of rate fixation in the circumstances.
[C.S. Inter – Modified]
Solution
The cost of conversion of production is to be computed.
STAGE I:
Particulars | Product AA′ 200 Units | Product BB′ 100 Units |
---|---|---|
Step 1: Time allowed. |
100 hrs |
200 hrs |
Step 2: Wages @ Rs. 6/hr (Step 1 × Rs. 6). |
Rs. 600 |
Rs. 1200 |
Step 3: Overhead @ 10 rupees per hour (assumed that there will be 20% saving in time). |
100 hrs − 20% = (80 hrs × 10) = Rs. 800 |
200 hr − 20% = 200 − 40 = 160 × 10 = Rs. 1,600 |
Step 4: Total (Step 2 + Step 3). |
Rs. 1,400 |
Rs. 2,800 |
STAGE II:
Particulars | Product AA′ | Product BB′ |
---|---|---|
Step 1: Wages for time taken @ Rs. 6/hr. |
80 × Rs. 6 = Rs. 480 |
120 × 6 = Rs. 720 |
Step 2: Incentive bonus @ Rs. 3 per hour of time saved (50% of Rs. 6 = Rs. 3). |
20 hrs × Rs. 3 = 60 |
80 hrs × Rs. 3 = 240 |
Step 3: Total wages (Step 1 + Step 2). |
Rs. 540 |
Rs. 960 |
Step 4: Overhead @ Rs. 10 per hour of time taken. |
80 × 10 = 800 |
120 × 10 = 1,200 |
Step 5: Cost of conversion (Add Step 3 + Step 4). |
Rs. 1,340 |
Rs. 2,160 |
Saving [Step (4) in Stage I − Step 5 in Stage II] |
Rs. 1,400 − Rs. 1,340 = Rs. 60 |
Rs. 2,800 − Rs. 2,160 = Rs. 640 |
Comment: The company will save in terms of costs of incentive bonus system is installed.
STAGE III:
AA′ | BB′ | |
---|---|---|
Step 1: Time allowed. |
100 hrs |
200 hrs |
Step 2: Wages @ Rs. 6 per hour. |
Rs. 600 |
Rs. 1,200 |
Step 3: Overtime @ Rs. 10 per hour (labour & overhead cost at normal hours at straight-piece rate) |
Rs. 1,000 |
Rs. 2,000 |
Step 4: Total cost |
Rs. 1,600 |
Rs. 3,200 |
STAGE IV:
(Ref. Stage II results) Total cost (↓) |
Rs. 1,340 |
Rs. 2,160 |
Compare the total cost when there is no incentive (Stage III) and when there is incentive (Stage IV), and you can find that the total cost is also less if the incentive system is introduced in the company.
Illustration 3.34
Model: Piece-work premium and Selling price
2 fitters, one labourer and one boy undertake a job on piece for a rate of Rs.1,890. The time spent by each of them is 110 ordinary working hours. The rates of pay on time-rate basis are Rs. 3.00 per hour for each of the two fitters, Rs. 2 per hour for the labourer and Re 1.00 per hour for the boy.
You are required to calculate as follows:
Cost of direct materials = Rs. 3,110.
Work overhead at 20% of prime cost.
Selling overhead at 10% of works cost.
Profit at 20% on the cost of sales
[I.C.W.A. – Modified]
Solution
|
|
Rs. |
(i) |
2 fitters at Rs. 3 per hour for 110 hrs each (2 × (110 × Rs. 3)) |
= 660 |
(ii) |
1 labourer at Rs. 2 per hour for 110 hrs (110 × Rs. 2) |
= 220 |
(iii) |
1 boy at Re.1 per hour for 110 hrs (110 × Re. 1) |
= 110 |
|
|
*Total = 990 |
(i) |
Total wages agreed on piece-rate basis (given) |
= 1,890 |
(ii) |
Less: *Wages computed on time basis (Ref: Step A) |
= 990 |
(iii) |
Piece-work premium |
= 900 |
Particulars | Rs. |
---|---|
Step 1: Direct material (given) |
3,110 |
Step 2: Direct wages (given) |
1,890 |
Step 3: Prime cost (Step 1 + Step 2) |
5,000 |
Step 4: Works overhead @ 20% on prime cost (20% of Rs. 5,000): |
1,000 |
Step 5: Works cost (Step 3 + Step 4) |
6,000 |
Step 6: Selling overhead @ 10% on works cost |
600 |
Step 7: Cost of sales |
6,600 |
Step 8: Add: Profit @ 20% on the cost of sales (20% of 6,600) |
1,320 |
Step 9: Selling price (Steps 7 + 8) |
7,920 |
Illustration 3.35
Model: Computation of standard time and Computation of time allowed
The time taken for the operator “A” in the process of a manufacturing concern on three different counts was 23, 21 and 25 minutes while that of the operator “B” was 20, 24 and 22 minutes. It has been ascertained that the rating of A is and that of B is Allowance for fatigue and personal needs are assumed at 12%. Calculate on the basis of the above information as a base:
[I.C.W.A. (Inter) – Modified]
Solution
For computation of the standard time, the time taken by each operator for each count is multiplied by the rating ratio to get normal time minutes. From the total normal time calculated, the average has to be found out. With this allowance for fatigue has to be added. The resultant figure will be the standard time which is arrived at as follows:
Average normalized time |
|
(a) |
Add: 12% allowance of fatigue (12% of 21.625) |
= 2.595 minutes. |
|
*Standard time |
= 24.220 minutes. |
(b) |
Computation of time allowed under incentive |
______ |
|
*(i) Standard time |
= 24.220 minutes. |
|
(ii) Add: 25% of standard time as an incentive (25% of 24.220) |
= 6.055 minutes |
|
(iii) Time allowed |
= 30.275 minutes |
Illustration 3.36
Model: Incentive bonus + Total earnings
A company employs its workers for a single shift of 8 hours for 25 days in a week. The company has recently fixed the standard output for a mass production item and introduced an incentive scheme to boost the output. The details of wages payable to the workers are as follows:
Standard output per day per worker = 40 units.
Incentive bonus up to 80% efficiency = Nil.
Incentive bonus for efficiency above 80% = Rs. 80 for every 1% increase above 80%.
The details of performance of four workers for the month of June 2009 are as follows:
Worker | No. of Days Worked | Output (Units) |
---|---|---|
A |
25 |
810 |
B |
19 |
450 |
C |
25 |
900 |
D |
21 |
720 |
You are required to calculate the total earnings of each of the workers.
[I.C.W.A. (Inter) – Modified]
Solution
First, the incentive is to be calculated as follows:
Worker |
Incentive @ Rs. 80 for Every 1% Increase in Efficiency Above 80% Rs. | |
---|---|---|
A |
1% increase × 80 = 80 |
|
B |
Nil efficiency below 80% |
|
C |
10% increase × 80 = 800 |
|
D |
6% increase × 80 = 480 |
*1. Next, the total earnings of each worker has to be computed. As per the directions given in the problem, the piece-wage rate is given subjected to a minimum of Rs. 50 per day. So, care should be taken in computing the wages. In this problem, the worker B produced 450 units. Based on the piece rate, his wages are 450 × Rs. 2 = Rs. 900. But under guaranteed wages per day is Rs. 50 per day. He worked for 19 days. ∴ 19 × Rs. 50 = Rs. 950. So, his wages should be shown as Rs. 950 and not as Rs. 900.
Illustration 3.37
Model: Net saving in the production cost to offset losses from labour turnover
A manufacturer introduces new machinery into his factory with the result that the production per worker is increased. The workers are paid by results, and it is agreed that for every 2% increase in the average individual output, an increase of 1% on the rate of wages will be paid. At the time the machinery is installed, the selling price of the products falls by .
You are required to show the net saving in the production costs which would be required to offset the losses expected form the reduced turnover and bonus paid to workers.
Additional data:
First period | Second period | |
---|---|---|
No. of workers |
350 |
250 |
No. of articles produced |
16,800 |
14,000 |
Wages paid |
Rs. 33,600 |
|
Total sales |
Rs. 75,600 |
|
[C.S. (Inter) – Modified]
Solution
STAGE I: Fall in sales value has to be computed as follows:
STAGE II: Computation of increase in wages:
No. of units produced by 350 workers = 16,800 units.
No. of units produced by 250 workers = (16,800/350) × 250= 12,000 units.
Actual production = 14,000 units.
Increase in wage rate = 16.666/2 = 8.333%.
Wages for 250 workers = Rs. 33,600 (given)
∴Wages for 250 workers = (Rs. 33,600/350) × 250 = Rs. 24,000.
∴ Increase in wages = Rs. 24,000 × 8.33% = Rs. 2,000.
STAGE III: Total production cost consists of:
Fall in sales value (Ref Stage I) |
= Rs. 5,250. |
Increase in wages (Ref Stage II) |
= Rs. 2,000. |
Result: Net saving in production cost |
= Rs. 7,250. |
This is another important element of cost like materials and labour. When costs are incurred in respect of services purchased from outside or available within the organization, they are called expenses. In case where an organization obtains services for a specific cost unit, the cost relating to it should be charged directly against the cost object. These expenses are known as “direct expenses”.
Direct expenses are defined as, “costs, other than materials or wages, which are incurred for a specified product or saleable service”.
Direct expenses are also called chargeable expenses. It includes all the direct costs excluding the ones incurred on the direct material and the direct labour for a specific cost unit. Direct expenses include:
Direct expenses form a part of the prime costs. But as per the terminology of CIMA, prime cost is “the total cost of direct material and direct labour”, which is the latest trend. It should be ensured that expenses directly incurred for cost centres should be identified with those cost centres and charged to cost units as overhead. In no case they should be treated as direct expenses.
Reasons for sub-contracting:
Labour is one of the important elements of cost. Labour cost represents wages paid to workers employed in business entities for producing goods or rendering services. Labour cost is classified into direct labour cost and indirect labour cost. Direct labour can be easily identifiable with costing unit whereas indirect labour can not be.
Time Recording involves two purposes—time-keeping and time-booking.
Labour Time Records: Various records—their specimen, purpose and maintenance are explained in detail (Ref: Main part of Text).
Accounting of Labour Cost: Monetary benefits, Non-monetary benefits (fringe benefits) and Deferred monetary benefits (terminal benefits). Various items included in each category and their accounting treatment are dealt with in detail (Ref: Text).
Work Study—a study of human work involves (i) Motion Study (ii) Time Study and (iii) Method Study. Meaning, definition, advantages and disadvantages for each of these have been explained in detail in the main part of the text.
Job Evaluation and Job Analysis: Job Analysis involves proper appraisal of jobs whereas Job Evaluation measures the relative worth of each job in an organisation. The various methods of Job Evaluation are: (i) Factor Comparison Method (ii) Rating Method (iii) Point Rating Method and (iv) Grading Method.
Various principles underlying the labour remuneration are explained in detail (Ref: Text)
Methods of Labour Remuneration: (i) Straight-Piece Rate Method (ii) Flat Time Rate Method (iii) Incentive Wage Plans (iv) Differential Piece Rate Method—Taylor’s Differential Piece Rate Method, Merrick’s Differential Piece Rate System, Gantt’s Task and Bonus Plan, (v) Premium Bonus Plans—Emerson’s Efficiency System, Bedauxe Scheme, Barth Scheme, Halsey Scheme, Halsey-Weir Scheme, Rowan Scheme, Accelerating Premium Bonus Scheme, Group Bonus Scheme:—Priest-man’s Production Bonus Plan, Rucker’s Plan, Scalon Plan, Towne Gain Sharing Plan, Budgeted Expenses Bonus—Each one is explained with its meaning, Salient features, advantages and disadvantages. Formula to compute value under each of the above methods by way of illustrations have been dealt with elaborately. (Ref: Text).
Labour Turnover: It denotes the rate of change in labour force in an organisation during a specified period computation of labour turnover rate is (illustrated) (No 18) made by applying (i) Separation Method; (ii) Replacement Method and (iii) Flux Method.
Idle Time: It represents the time during which the worker was idle but wages are paid for that time. Causes, accounting treatment, and control of idle time are all explained in detail (Ref: Text).
Overtime: A worker working more than 8 hours a day or 48 hours a week i.e., working beyond normal hours is called overtime and additional wages for extra time is referred to as Overtime Premium. Causes, disadvantages, control of overtime and accounting treatment of overtime all are explained in detail (Ref: Text).
Direct expenses may be defined as costs, other than materials or wages, which are incurred for a specific product or saleable service.
Accounting treatment of Direct Expenses: Ref: Text.
Clock Card: A document used for recoding the date and time of entry and departure of workers.
Job Card: A document used for recording the time spent by various workers on each job.
Motion Study: The study of body motions that occurred in performing an operation, aiming to establish the most favourable motion sequence for the maximum efficiency.
Time Study: Technique of establishing an allowed standard time to perform a given task.
Job Evaluation: A technique that equitably measures the relative worth of a job in a firm.
Job Analysis: A study of job in all phases for formulating the job description and job specifications.
Merit Rating: A technique used for the determination of each worker’s fair wages on the basis of his ability, skill and performance.
Idle Time: It represents the difference between the time for which the workers are paid and the time spent on the job.
Overtime: A worker who works beyond and above the normal working hours (i.e., 8 hours a day or 48 hours a week)—such time spent on a job.
Labour Turnover: The change in the composition of labour force arising on account of retirement, resignation, death
I. State whether the following statements are true or false
Answers:
1. True |
2. True |
3. True |
4. False |
5. False |
6. False |
7. True |
8. False |
9. True |
10. True |
11. False |
12. False |
13. False |
14. True |
15. False |
16. False |
17. True |
18. False |
19. True |
20. True |
21. False |
22. False |
23. True |
24. True |
25. True |
26. True |
27. True |
|
II. Fill in the blanks with apt word(s):
= (Hourly rate × Time taken)
+ (— … × Time saved × hourly rate).
Answers:
III: Multiple choice questions choose the correct answer
Answers:
1. (a) |
2. (b) |
3. (c) |
4. (d) |
5. (a) |
6. (b) |
7. (c) |
8. (d) |
9. (a) |
10. (b) |
11. (c) |
12. (d) |
13. (b) |
14. (a) |
15. (d) |
16. (c) |
|
|
|
|
[Model: Labour turnover]
1. From the following particulars supplied by the personnel department of a firm, calculate labour turnover
Total no. of employees at the beginning of the month |
2,010 |
No. of employees who are recruited during the month |
30 |
No. of employees who left during the month |
50 |
Total no. of employees at the end of the month |
1,990 |
[Madras University & Madurai University]
[Ans: Labour-turnover rate as follows:
2. Calculate labour-turnover rate from the following particulars:
No. of workers in the beginning |
8,000 |
No. of workers at the end |
10,000 |
No. of separations |
1,500 |
No. of replacements |
1,200 |
[Osmania University]
[Ans: (i) Separation method : 16.67%
(ii) Replacement method : 13.33%
(iii) Flux method : 30%]
3. The following information is extracted from the records of a company for the month of October:
No. of employees at the beginning of the month |
950 |
No. of employees at the end of the month |
1,050 |
No. of employees resigned |
10 |
No. of employees discharged |
30 |
No. of employees replaced in the vacancies |
20 |
No. of employees appraised due to expansion scheme |
120 |
Calculate the labour-turnover rate. |
|
[Madras University]
[Ans: (i) Separation method – 4%;
(ii) Replacement method – 2%; and
(iii) Flux method –18%]
4. Raghavendra Metal Company gives the following information:
No. of employees at the beginning of the year |
200 |
No. of employees at the end of the year |
240 |
No. of employees resigned |
20 |
No. of employees discharged |
5 |
No. of employees replaced |
18 |
Calculate the labour turnover by applying three methods
[Madras University & Bharathidasan University]
[Ans: Labour-turnover rate as follows:
[Model: Allocation of wages]
5. A machinist employed in a factory which works for six days in a week is paid Rs. 50 per day. Plus DA at 60% of the basic wages. He is allowed to take 30 minutes off for lunch during his 8-hour shift. During a week, his card showed that his time was chargeable to:
The time not booked was because of power failure. Allocate his weekly wages to the different jobs and other appropriate accounts.
[Ans:
Wages chargeable to Job 2: Rs. 150
Wages chargeable to Job 3: Rs. 120
[Model: Normal and overtime wages]
6. The time card of a worker reveals that in a normal week of 48 hours, he worked for 53 hours at the rate of Rs. 20 per hour. Taking an overtime premium at 150% of normal time rate, calculate the gross wages.
[Madras and Madurai – Modified]
[Ans: Rs. 1,110 (i.e., 48 hrs × Rs. 20 + 5 hrs × Rs. 30 (150% of Rs. 20))]
7. Calculate the normal and overtime wages payable to a workman from the following data:
Days | Hours worked |
---|---|
Monday |
8 |
Tuesday |
10 |
Wednesday |
9 |
Thursday |
11 |
Friday |
9 |
Saturday |
4 |
Total |
51 hours |
Normal working hours: 8 hrs per day
Normal rate: Re 1.00 per hour
Overtime rate: Up to 9 hrs in a day as single rate and over 9 hrs in a day as double rate
(or)
Up to 48 hrs in a week at single rate and over 48 hrs at double rate, whichever is more beneficial to the workmen.
[Bharatiar University – Modified]
[Ans: Total wages = Rs. 54.
In this case, the wages are Rs. 54 on both the bases.]
8. From the following particulars, you are required to calculate under the “average wage rate” the labour cost chargeable to Job No. A which was completed in 1990:
The basic wage rate is Rs. 2 per hour and the overtime rates are as follows:
Before or after working hours = 150% of basic wage rate.
Sundays and holidays = 200% of basic wage rate.
During the year 1990, the following hours were worked:
Normal time = 2,00,000 hours.
Overtime before or after working hours 30,000 hours.
Overtime on Sundays and holidays 20,000 hours.
Total 2,50,000 hours
For Job A, 3,500 hours were spent as follows:
Normal time = 3,000 hours.
Before and after working hours = 300 hours.
Sundays and holidays = 200 hours.
[Calcutta University B.Com (H)]
[Ans:
[Model: Cash required for wage payment]
9. From the following particulars, find the amount of cash required for the payment of wages in a factory for a particular month:
|
Rs. |
(a) Normal wages |
20,500 |
(b) Overtime wages |
2,200 |
(c) Leave wages |
1,700 |
(d) Deduction of employee’s share to ESI |
500 |
(e) Deduction of employee’s contribution to PF |
1,600 |
(f) House rent is to be recovered from 30 employees @ Rs. 300 per month |
[Sri Venkateswara University and Madras University – Adapted]
[Ans: Cash required for payment of wages: Rs. 22,000]
10. From the following details, ascertain the amount of cash required for payment of salaries in a firm for a particular month:
[Ans: Cash required for payment of salaries: Rs. 60,660]
[Model: Labour cost to the employer]
11. From the following data, prepare a statement showing the cost per day of eight hours of engaging a particular type of labour:
[Madras University, Periyar University and Bharathiyar University]
[Ans: Cost per day (for 8 hours) = Rs. 19.96]
12. A worker’s
Find out the (i) wages payable to worker and (ii) labour cost per month.
[Sri Venkateswara]
[Ans: (i) Rs. 804.40; (ii) Rs. 904.84]
Following are the steps to be followed:
A | B | |
---|---|---|
(a) Basic wages |
Rs. 100 |
Rs. 100 |
(b) DA % on basic wages |
50% |
50% |
(c) PF on basic wages |
8% |
8% |
(d) ESI (on basic wages) |
2% |
2% |
(e) Overtime |
10 hours |
– |
(f) Idle time and leave |
– |
16 hours |
The normal working hours for the month are 200. Overtime is paid for at double the normal rate plus DA. Employee’s contribution to ESI and PF are at equal rates with the employer’s contribution. The month has 25 working days and one paid holiday.
The two workers were employed on jobs X, Y, and Z in the following proportions:
Overtime was done on Job Y.
[Madras University]
|
A |
B |
[Ans: (i) Earnings of workers |
Rs. 155 |
Rs. 145 |
(ii) Labour cost (excluding OT) |
Rs. 160 |
Rs. 165 |
(iii) Labour cost of Jobs: |
X: Rs. 146; |
Y Rs. 96; |
|
Z Rs. 97.50] |
|
[Model: Labour cost per hour]
13. Calculate the labour cost per hour for a worker from the following information:
Basic pay = Rs. 2,000 p.m
DA = Rs. 1,500 p.m
CCA + HRA = Rs. 1,000 p.m
No. of working days per year = 300
Leave rules : 30 days paid leave with full pay:
20 days sick leave with half pay
Usually, sick leave is fully availed off.
[Madras –Adapted]
[Ans: |
Labour cost per hour : Rs. 26.25 |
|
Net labour cost per year : Rs. 52,500 |
|
Effective working days per annum : 250 days] |
14. From the following data, prepare a statement showing the cost per day of 8 hours of engaging a particular type of labourers:
[Bharathiar, Periyar and Madras–Modified]
[Ans: Labour cost per hour = Rs. 12.50
Labour cost per day = Rs. 100
Labour cost per month = Rs. 2500]
[Model: Worker’s earnings, labour cost and its allocation to jobs]
15. Calculate the earnings of workers A and B from the following particulars for a month and allocate the earnings to each Jobs X, Y, and Z:
|
A |
B |
(i) Basic wages |
Rs. 1,000 |
Rs. 1,000 |
(ii) Dearness Allowance |
50% |
55% |
8% |
8% |
|
(iv) Employee’s state Insurance (on basic wages) |
2% |
2% |
(v) Overtime |
10 hours |
– |
(vi) Idle Time and Leave |
– |
16 hours |
The normal working hours for the month are 200 hours. Overtime is paid at double the normal wages plus dearness allowance. Employer’s Contribution to state insurance and provident fund are at an equal rate with employee’s contributions. A month has 25 working days and one paid holiday. The two workers employed on jobs. X, Y, and Z in the following proportions:
Overtime was done on Job Y.
[Ans: |
Earning of workers: A: Rs. 1,550; B: Rs. 1,450 |
|
Labour Cost (excluding OT): A: Rs. 1,600; |
|
B: Rs. 1,650 |
|
Labour Cost of Jobs: |
|
X: Rs. 1,465 |
|
Y: Rs. 960 |
|
Z: Rs. 975] |
[Model: Methods of remuneration and incentive systems – time and piece wages]
16. Mr. Menon works in a factory where the following particulars apply:
Normal rate per hour = Rs. 7.50
Normal piece rate = 20% more of time rate
Expected output = 20 units per hour
Mr. Menon produces 157 units in an 8-hour day. Calculate his wages for the day on (a) time basis and (b) piece basis.
[Kerala University]
[Ans: (a) Time wages: Rs. 60
(b) Piece wages: Rs. 70–65]
17. A company has set 5 units per hour as the standard output, each unit having a piece rate of Rs. 3. In a normal day of 8 hours, X produces 35 units and Y produces 50 units. The usual hourly rate applicable to all workers is Rs. 15. Find out the earnings of X and Y:
[Ans: (a) X: Rs. 120 Y: Rs. 120
(b) X: Rs. 105 Y: Rs. 150
(c) X: Rs. 120 Y: Rs. 150]
[Model: Taylor’s differential piece-rate system]
18. With the help of the following information, you are required to ascertain the wages paid to workers X and Y under Taylor’s differential-piece-rate system:
Standard time allowed = 10 units per hour
Normal wage rate = Re 1 per hour.
Differential rates to be applied:
75% of piece rate when below standard
125% of piece rate when at or above standard
The workers have produced in a day of 8 hours as follows:
X: 60 units Y = 100 units
[Madras University and Andhra University]
[Ans: Standard output in a day of 8 hrs = 80 units
Ordinary piece rate: Re. 0.10
Earning: X = Rs. 4.50; Y = Rs. 12.50]
19. Calculate the earnings of workers A and B under straight piece-rate system and Taylor’s differential piece-rate system from the following particulars:
Normal rate per hour : Rs. 1–80
Standard time per unit : 20 seconds
Differentials to be applied:
80% of piece rate below standard
120% of piece rate at or above standard
Worker A produces 1,300 units per day and Worker B produces 1,500 units per day.
[Calicut University and Madras University]
[Ans: |
|
A |
B |
|
|
Rs. |
Rs. |
|
Straight piece-rate system |
13 |
15 |
|
Taylor’s differential piece-rate system |
10.40 |
18] |
[Model: Merrick’s multiple piece-rate system]
20. On the basis of the following information, calculate the earnings of A, B, C and D under Merrick’s differential piece-rate system:
Standard production per hour = 12 units
Normal rate per hour Re 0–60
In an 8-hour day:
A produced: 64 units
B produced: 96 units
C produced: 84 units
D produced: 100 units
[Sri Venkateswara University and Madras University]
[Ans: |
A: Rs. 3.20; |
B: Rs. 5.28; |
|
C: Rs. 4.62; |
D: Rs. 6] |
21. Calculate the earnings of three workers A, B and C under Merrick’s differential piece-rate system:
Standard production |
= 360 units |
A produced |
= 270 units |
B produced |
= 300 units |
= 390 units |
|
Ordinary piece rate |
= 0.10 per unit |
[Madras University – Modified]
[Ans: A: Rs. 27; B: Rs. 33; C: Rs. 46.80]
[Model: Gantt’s task and bonus plan]
22. From the following information, calculate the earnings of three workers X, Y, and Z under Gantt’s task bonus plan.
[Karnataka University]
[Ans: X: Rs. 120; Y: Rs. 144; Z: Rs. 180]
23. From the following information you are required to fix a high piece rate and calculate the earnings of X, Y and Z who complete the job within 12, 10 and 9 hours, respectively.
Standard time – 10 hours for a job
Rate per hour – Re 1
Below 100% efficiency – Time wage
At 100% efficiency – Time wage plus 10%
Above 100% efficiency – Straight piece rate + 20%
What will be their effective hourly rate?
[Madras University – Modified]
[Ans: High piece rate: Rs. 10; Earnings: X: Rs. 12
Y: Rs. 11
Z: Rs. 12
Effective hourly rate:
X: Re 1.00
Y: Rs. 1.10
Z: Rs. 1.34]
[Model: Halsey plan]
24. Standard time = 10 hours
Time taken = 8 hours
Time rate = Rs. 2.50 per hour
Calculate the total earnings under Halsey plan
[Madurai Kamaraj University and Bharathidasan University]
[Ans: Rs. 22.50]
25. In a factory, the standard output is 48 units per week for a working week of 48 hours. The hourly rate is Rs. 3. Three workers X, Y and Z produce 42, 48 and 72 units in a particular week. Find the earnings of each worker under Halsey system of wage payment.
[Mysore University – Modified]
[Ans: X Rs.: 144
Y Rs.: 144
Z Rs.: 180]
[Model: Halsey–Weir plan]
26. Calculate the wages of a worker under Halsey–Weir system from the following information:
Time allowed: |
48 hours |
Time taken: |
40 hours |
Rate per hour: |
Rs. 3 |
[Ans: Rs. 127–20]
27. Calculate the amount of wages and bonus earned by this worker under Halsey–Weir plan:
Name |
Surrender |
Job commenced |
Monday 23 |
Job finished |
Saturday 28 |
Quantity of pieces of work given out |
= 638 |
Quantity of pieces of work passed |
= 600 |
Worker’s rate |
= 50 paise per hour |
Time allowed |
= 10 pieces per hour |
Bonus |
= 30% of time saved |
Assume that the employee worked for 9 hours a day without any overtime.
[Bharathidasan University]
[Ans: Rs. 26–50]
[Model: Rowan plan]
28. Standard time allowed for a job is 50 hours. The hourly rate of wages is Rs. 2 per hour plus a DA at Rs. 2.50 per hour worked. The actual time taken by the worker was 40 hours. Calculate the total wages as per Rowan plan.
[Kakatiya University]
[Ans: Rs. 196]
29. Calculate the total wages payable to a worker under Rowan system from the following particulars:
Job No. |
Time allowed |
Time taken |
1 |
25 hours |
20 hours |
2 |
30 hours |
28 hours |
The worker is entitled to a fixed DA of Rs. 100 per week of 48 hours and basic wages of Rs. 10 per hour.
[Bangalore University]
[Ans: Rs. 638–67]
[Model: Halsey and Rowan plans]
30. Standard time fixed for a job in a manufacturing concern is 40 hours. Time rate is 60 paise per hour. The actual time taken by workers A, B and C is 20 hours, 15 hours and 30 hours, respectively. Calculate the total remuneration of A, B and C on the basis of (a) Halsey plan and (b) Rowan plan
[Bangalore University]
[Model: Earnings and rate per hour]
31. The two workers A and B produced 80 and 100 pieces of a product ‘x’ on a particular day. The time allowed for 10 units of product ‘x’ is 1 hour. The hourly rate is Rs. 4.
Calculate the following:
Earnings for the day
Effective rate of earnings per hour under
Halsey premium bonus (50 % sharing)
Rowan premium bonus
[Madras University]
[Ans: |
Under Halsey plan: |
|
Earnings for the day: A: Rs. 32; B: Rs. 36. |
|
Effective rate of earnings per hour: A: Rs. 4; |
|
B: Rs. 4.50 |
|
Under Rowan plan: |
|
Earnings for the day: A: Rs. 32; B: Rs. 38.40. |
|
Effective rate of earnings per hour: A: Rs. 4; |
|
B: Rs. 4.80] |
[Model: Earnings and overheads]
32. In a factory, one work order was completed in 26 hours. The standard time for this work was 40 hours and the worker was paid at Rs. 10 per hour. The factory overhead charges were 80% of the standard time. Find out the worker’s total earnings, employer’s savings and effective earnings rate per hour under (a) Halsey plan and (b) Rowan plan
[Madurai Kamaraj University]
[Model: Halsey and Rowan plans – A comparative statement of earnings and savings]
33. For a certain work order, the standard time is 20 hours. The actual time taken is 13 hours. Wages per hour is Rs. 5 and the factory overheads are 80% of standard time.
Set out a comparative statement showing the effect on paying wages under
(a) Halsey system (b) Rowan incentive bonus system
[Madras University]
Ans: |
Particulars |
Halsey Rs. |
Rowan Rs. |
|
Time wages |
65 |
65 |
|
Bonus |
17.50 |
22.75 |
|
Total earnings |
82.50 |
87.75 |
|
Effective earnings per hour |
6.35 |
6.75 |
|
Savings in wages for employer |
17.50 |
12.25 |
|
Savings in overheads for employer |
28 |
28 |
|
Total savings for employer |
45.50 |
40.25 |
[Model: Halsey and Rowan plans – combined with other systems]
34. Calculate the earnings of a worker under the following methods:
Time-rate method |
|
Piece-rate method |
|
Halsey plan |
|
Rowan plan |
|
Information given: |
Standard time 30 hours |
|
Time taken 20 hours |
Hourly rate of wages Re 1. per hour + a DA @ 50 paise per hour worked.
[Madras University – 1999, 2004;
Periyar University – 2004;
Bharathiar University – 2004]
[Ans: Earnings: (a): Rs. 30
(b): Rs. 40
(c): Rs. 35
(d): Rs. 36.67]
35. From the following particulars, work out the earnings for the week of a worker under
Number of working hours per week = 48
Wage per hour = Rs. 3.75
Normal time per piece = 20 minutes
Rate per piece = Rs. 1.50
Normal output per week = 120 pieces
Actual output for the week = 150 pieces
Differential piece rate: 80% of piece rate when the output is below standard and 120% when above standard.
[Madras University – 2008]
[Ans: Earnings of worker per week under:
Straight piece rate – Rs. 225
Differential piece rate – Rs. 270
Halsey premium plan – Rs. 183.75
Rowan system – Rs. 187.20]
[Model: Computation of factory cost]
36. A worker is allowed 18 hours to complete a job, which he accomplishes in 12 hours. His hourly rate is Rs. 2. The material cost of the product is Rs. 20. The over heads are recovered at 75% of the direct wages. Calculate the factory cost of the job under
(a) piece rate, (b) Halsey plan, and (c) Rowan plan.
[Bangalore University]
[Ans: Factory cost: (a) Rs. 62; (b) Rs. 72.50; (c) Rs. 76]
37. A worker takes 9 hours to complete a product on daily wages and 6 hours on a scheme of payment by results. His day rate is 75 paise an hour, the material cost of the product is Rs. 4 and the overheads are recovered at 150% of the total direct wages. Calculate the factory cost of the product under:
(a) Piece-work plan (b) Rowan plan (c) Halsey plan
[Bharathiar University and Madras University]
[Ans: (a) Rs. 15.25 (b) Rs. 19 (c) Rs.18.07]
[Model: Emmerson’s efficiency plan]
38. From the following information, calculate the bonus and earnings under Emerson’s efficiency bonus plan
Standard output in 12 hours – 192 units
Actual output in 12 hours – 168 units
Time rate – Re. 0.75 per hour
If the actual output is 240 units, what will be the amount of bonus and earnings?
[Madras University]
[Ans: |
(a) when the actual output is 168 units: |
|
Bonus: Re. 0.72 |
|
Earnings: Rs. 9.72 |
|
When the output is 240 units: Bonus: Rs. 4.05 |
|
Earnings: Rs. 13.05] |
[Model: Bedeaux’s point system]
39. Calculate the earnings of a worker under Bedeaux’s plan
Standard output in 8 hours = 120 units
Actual output in 8 hours = 150 units
Time rate = Re. 0.50
[Ans: Rs. 4.75]
[Model: Barth’s variable-sharing plan]
40. Calculate the wages of workers under Barth’s variable-sharing plan:
|
Time allowed |
36 hours |
|
Time taken |
25 hours |
|
Rate per hour |
Rs. 1.50 |
[Ans: Rs. 45]
[Model: Sundry premium plan]
41. Calculate the total monthly remuneration of three workers A, B, and C from the following data:
Standard production per month per worker – 1,000 units. Actual production during the month:
A: 850 units; B: 750 units; C: 950 units.
Piece rate Re. 0.10 per unit (actual production).
Additional production bonus is Rs. 10 for each percentage of actual production exceeding 80% of the standard production.
DA – Rs. 50 per month (fixed)
[Madras University]
[Ans: A: Rs. 185; B: Rs. 125; C: Rs. 295]
[Model: Sliding scale or Accelerated premium bonus plan]
42. What will be the earnings of a worker at Re. 0.55 per hour when he takes 140 hours to do a volume of work for which the standard time allowed is 200 hours? The plan of payment of hours is on a sliding scale as follows:
Within the first 10% saving in the standard time – bonus is 40% of the time saved
Within the second10% saving in the standard time – bonus is 50% of the time saved
Within the third 10% saving in the standard time – bonus is 60% of the time saved
Within the fourth 10% saving in the standard time – bonus is 70% of the time saved
[Madras and Karnataka Universities]
[Ans: Earnings: Time wages (140 hrx0.55) + Bonus (30 × 0.55) = Rs. 93.50]
[Model: Group-bonus schemes]
43. A, B and C are engaged in a group task for which payment of Rs. 725 is agreed upon:
Time-wage rates are: |
A: Rs. 8 per day |
|
B: Rs. 6 per day |
|
C: Rs. 5 per day |
A worked for 25 days, B for 30 days and C for 40 days. Distribute the amount to A, B and C on an equitable basis.
[Calicut University]
[Ans: A: Rs. 250; B: Rs. 225; C: Rs. 250]
44. In a factory, the group-bonus scheme is in use which is calculated on the basis of earnings under time rate. The following particulars are available for a group of four workers P, Q, R and S:
Output of the group – 16,000 units.
Piece rate per 100 units – Rs. 2.50 in addition to time wages.
No. of hours worked by – P: 90; Q: 72; R: 80; and S: 100.
Time rate per hour for: P: Re. 0.80; Q: Re. 1; R: Rs. 1.20; and S: Re. 0.80.
Calculate the bonus and total wages earned by each worker.
45. Calculate the earnings of A and B from the following particulars for a month and allocate the labour to each job X, Y and Z:
A | B | |
---|---|---|
(i) Basic wages |
Rs. 100 |
100 |
(ii) DA |
50% |
50% |
(iii) Contribution to PF (on basic wages) |
8% |
8% |
(iv) Contribution to ESI (on basic wages) |
2% |
2% |
(v) Overtime hours |
10 |
- |
The normal working hours for the month are 200. Overtime is paid at double the total of normal wages and DA. Employer’s contribution to ESI and PF are at equal rates with the employee’s contributions:
[C.A. (Inter)]
[Ans: |
Net wages paid: A: Rs. 155; B: Rs. 224 |
|
Labour cost: A: Re. 0.80; B: Rs. 1.28 |
|
Allocation of wages to Jobs: |
|
A: X: Rs. 64; Y: Rs. 48; Z: Rs. 48 = Rs.160. |
|
A: overtime Y: Rs.15 = Rs.15 |
|
= Rs.175. |
|
B: X: Rs. 128; Y: Rs. 51.20; Z: 76.80 = Rs. 256. |
46. The cost accountant of Tirupati Electronics Ltd. has computed labour-turnover rates for the quarter ending 31 March as 10%, 5% and 3%, respectively, under Flux method, replacement method, and separation method. If the number of workers replaced during that quarter is 30, find out the number of
[B.Com (Hons) – Delhi]
[Ans: (a) Workers recruited and joined: 10
(b) Workers left and discharged: 20]
47. The workmen Vishnu and Shiva produced the same product using the same material. Their normal wage rate is also the same. Vishnu is paid bonus according to the Rowan system, while shiva is paid bonus according to the Halsey system. The time allowed to make the product is 100 hours. Vishnu takes 60 hours while Shiva takes 80 hours to complete the product. The factory cost for the product for Vishnu is Rs. 7,280 and for Shiva it is Rs. 7,600. You are required to:
[C.A. (Inter)]
[Ans: (a) Normal wage rate is Rs. 20 per hour
(b) The cost of materials is Rs. 5000]
48. The milling section of a factory engages 25 direct workers. During the month of June, they were paid for 4,800 normal attendance hours at an average rate of Rs.1.50 per hour. In addition, they also worked for 400 over-time hours at a double pay. The overtime was necessitated by abnormal circumstances in the month of April. For the purpose of reckoning labour cost, 40% for fringe benefits is to be added to the gross wages.
From the following particulars, find out:
(a) The worked-out total labour cost and allocate it to different cost elements:
Hours booked to jobs – 4,200
Allowed idle time – 12½%
There was no incidence of abnormal idle time. Actual ideal time was exactly in accordance with the standard set for the purpose.
[M.Com – Kerala University]
[Ans: (a) Rs. 11,760
(b) Jobs – Rs. 8,820
Factory overhead – Rs. 1,260
Costing P&L A/c – Rs. 1,680]
49. The profitability position of M/s Pioneer Industries Ltd for a year is as follows:
Rs. (in Lakhs) |
||
---|---|---|
Annual turnover |
|
200 |
Variable costs: |
|
|
Direct material |
60 |
|
Direct labour |
40 |
|
Variable overheads |
50 |
150 |
Marginal contribution |
|
50 |
Fixed overheads |
|
10 |
Profit for the year |
|
40 |
The profit for the year did not match with company’s expectation and the works management attributed it to labour turnover.
Analysis of data revealed the following:
|
Direct labour hours |
Permanent workmen worked during the year: |
9,60,000 |
Apprentice workmen worked: |
80,000 |
Total direct labour hours: |
10,40,000 |
The effectiveness of direct labour hours put in by apprentice workmen was 50% and the delay in replacing against the separations resulted in a loss of 20,000 direct labour hours. Calculate the loss or profit on account of loss of production from labour turnover.
[I.C.W.A. (Inter)]
50. Following are the particulars for a month relating to four employees working in department ‘M’ of a factory exclusively for Job No. 120.
The normal working hours per week of six days are 48, at 8 hours per day. Sundays are paid holidays. (There are no other holidays during the month.)
PF contribution was 8% of monthly wages by an employee.
PF contribution was 8% of monthly wages by the employer.
Contribution to ESIC was 3% of monthly wages by employee and 5% of monthly wages by employer. From the foregoing data, calculate:
[I.C.W.A. – Inter)]
[Ans: (a) Rs. 1,699.90; (b) Rs. 305.60; (c) Rs. 152.80; (d) Rs. 2,158.30; (e) Rs. 12,237.45]
51. A factory department has 180 workers who are paid on an average of Rs. 17.50 per week (48 hours), DA per month (208 hours) of Rs. 130, and PF deduction at 8% on gross; of which, 11/6 is for family-pension fund of half the number of workers and ESI being at Rs. 1.25 for each. The employer contributes an equivalent amount. The company gives only the minimum bonus of 81/3 % and allows a statutory leave of 2 weeks per year with salary. Show the weekly-wage summary for the financial books and the department labour-hour costs for cost jobing.
[I.C.W.A. – Inter]
[Ans: (a) Net earnings for the week: Rs. 7,641
(b) Labour cost per hour: Rs. 1.2153]
52. The management of Sunshine Ltd. wants to have an idea of the profit lost/foregone as a result of the labour turnover last year.
Last year the sales amounted to Rs. 66,00,000 and the P/V ratio was 20%. The total number of actual hours worked by the direct labour force was 3.45 lakhs. As a result of the delays by the personnel department in filling the vacancies due to labour turnover, 75,000 potentially productive hours were lost. The actual direct labour hours included 30,000 hours attributable to training new recruits, out of which half of the hours were unproductive. The costs incurred consequent on labour turnover revealed, on analysis, the following:
|
|
Rs. |
|
Settlement cost due to leaving |
27,420 |
|
Recruitment cost |
18,725 |
|
Selection cost |
12,750 |
|
Training cost |
16,105 |
Assuming that the potential production lost due to labour turnover could have been sold at prevailing prices, ascertain the profit foregone/lost last year on account of labour turnover
[C.A. (Inter)]
[Ans: Contribution foregone : Rs.3, 00,000
Total profit foregone : Rs.3, 75,000]
53. A worker produced 200 units in a week’s time. The guaranteed weekly-wage payment for 45 hours is Rs. 81. The expected time to produce one unit is 15 minutes which is raised further by 20% under incentive schemes. What will be the earnings per hour of that worker under Halsey (50% sharing) and Rowan bonus schemes?
[C.A. (Inter)]
[Ans: (i). Rate per hour = Rs. 1.80.
Under Halsey scheme:
Total earnings: Rs. 94.50.
Earnings per hour: Rs. 2.10.
Under Rowan scheme:
Total earnings: Rs. 101.25.
Earnings per hour: Rs. 2.25.]
54. A, B and C in a particular day had produced 200, 250 and 300 pieces, respectively, of a product “p”. The time allowed for production of 25 units of “p” is 1 hour and the hourly rate of wage payment is Rs. 8. Calculate for each of these workers the following under Halsey premium bonus (50% sharing) and Rowan premium bonus methods of labour remuneration:
[I.C.W.A. (Inter)]
[Ans:
Rowan: A: Rs. 64; B: Rs. 76.80; and C: Rs. 85.33
Rowan: A: Rs. 8; B: Rs. 9.60; and C: Rs. 10.67]
55. A worker whose day wages are Rs. 2.50 per hour received a production bonus under the Rowan scheme. He carried out the following work in a 48-hour week:
Job 1 - 1,500 items at 4 hours per 1,000
Job 2 - 1,800 items at 3 hours per 1,000
Job 3 - 9,000 items at 6 hours per 1,000
Job 4 - 1,500 items for which no “standard time” was fixed and it was arranged that the worker would be paid a bonus of 25%. Actual time on the job was 4 hours.
Job 5 - 2,000 items at 8 hours per 1,000. Each item was estimated to be half-finished.
Job 2 was carried out on a machine running at 90% efficiency and an extra allowance of 1/9th of the actual time was given to compensate the worker. Four hours were lost due to power-cut. Calculate the earnings of the worker, clearly stating your assumptions for the treatment given by you for the hours lost due to power-cut.
[I.C.W.A. (Inter)]
[Ans: Total wages under Rowan plan: Rs. 168.73.
Hint:
56. In a manufacturing concern, the bonus to workers is paid on a slab rate based on cost savings towards labour and overheads. The following are the slab rates:
up to 10% saving |
5% of earning |
up to 15% saving |
9% of earning |
up to 20% saving |
13% of earning |
up to 30% saving |
21% of earning |
up to 40% saving |
28% of earning |
above 40% saving |
32% of earning |
The wages rate per hour of 4 workers – P, Q, R and S are, respectively, Re. 1; Rs. 1.10; Rs. 1.20; and Rs. 1.40. Overheads are recovered on direct wages at the rate of 200% standard cost under wages and overheads per unit of production is fixed at Rs. 30. The workers have completed one unit each in 8, 7, 5 ½ and 5 hours, respectively. Calculate in respect of each worker:
[I.C.W.A. (Inter)]
57. Payment of wage bonus is made in a concern on the following scale on the basis of the percentage of time saved to time allowed:
Time Saved (% of Standard) |
Bonus (% of Time Saved) |
---|---|
Upto 25% |
10% |
Above 25% and up to 35% |
(i) plus 20% of time saved above 25% and 35% |
Above 35% |
(ii) plus 30% of time saved beyond 35% |
Calculate the earnings of a worker (wage rate Rs. 1.20 per hour) who takes 50 hours to complete a job, the standard time allowed for which is 100 hours.
[I.C.W.A. (Inter)]
[Ans: Total earnings: Time wages: Rs. 60 + Bonus: Rs. 10.80 = Rs.70.80]
58. From the following particulars, calculate the group bonus payable in this case and the amount that will be paid to each member of the group. The standard production in a week is 120 units.
It is agreed that for every 10% increase in production, a bonus of 5% of the total wages payable of the week will be paid and the same will be shared by the group consisting of four members in proportion to their total wages. Total production for the week is 145 units. Wages earned by the four members of the group A, B, C and D are Rs. 80, Rs. 78, Rs. 72 and Rs. 68, respectively.
[I.C.W.A. (Inter)]
[Ans: Share of Bonus: A: Rs. 8; B: Rs. 7.80; C: Rs. 7.20; D: Rs. 6.80]
59. XYZ Ltd employs workers for a single shift of 8 hours for 25 days in a month. The company has recently fixed the standard output for a mass production item and introduced an incentive scheme to boost the output. Details of wages payable to the workers are as follows:
Standard output per day per worker : 40 units
Incentives bonus up to 80% efficiency : Nil
Incentives bonus for efficiency above 80% : Rs. 50 for every 1% increase above 80%
The details of performance of four workers for the month are as follows:
Worker | No. of Days Worked | Output (Units) |
---|---|---|
A |
25 |
820 |
B |
18 |
500 |
C |
25 |
910 |
D |
24 |
780 |
Calculate the total earnings of each of the workers
[I.C.W.A. (Inter)]
[Ans: A: Rs. 2,740; B: Rs. 1,800; C: Rs. 3,370; D: Rs. 2,570]
60. Two fitters, a labourer and a boy undertake a job of piece for a rate of Rs. 1,290. The time spent by each of them is 220 ordinary working hours. The rates of pay on a time-rate basis are Rs. 1.50 per hour for each of the two fitters, Re. 1 per hour for the labourer and Re. 0.50 per hour for the boy.
Now calculate the following:
The amount of piece-work premium and the share of each worker, when the piece-work premium is divided proportionately to the wages paid.
The selling price of the above job on the basis of the following additional data:
Cost of direct material is Rs. 2,010, works overhead is at 20% of the prime cost. Selling overhead at 10% of the works cost and profit at 25% on the cost of sales.
[I.C.W.A. (Inter)]
[Ans: (a) Piece-work Premium: Rs. 300
Share of 2 filters : Rs. 200
Share of 1 labourer : Rs. 66.67
Share of 1 boy : Rs. 33.33
(b) Selling price : Rs. 5,445]