CHAPTER 3 EMPLOYEE LABOUR COST

1. Labour Turnover Rates

Q1. Labour Turnover Rates - with Expansion
Number of workers as on 𝟏st January = 7,600, Number of workers as on 𝟑𝟏st
December = 8,400.
During the year, 80 workers left while 320 workers were discharged. 1,200
workers were recruited during the year of these, 300 workers were recruited
because of exits and the rest were recruited in accordance with expansion
plans.
From the given information, calculate Labour Turnover Rate under various
methods.
Solution:
Note: Since there has been an expansion, Separation, Accession and Flux methods
should be used.
Basic Calculations Labour T/O Formula & Answer
Method
1. Average Labour Force = L =
7600+8400
= Separation S 400
2 = = = 5%
8,000 workers. L 8000

2. Number of Separations = S = Left + Accession A 1200

= = = 15%
Discharged L 8000
= 80 + 320 = 400 workers.
3. Number of Accessions = A = 1,200 Flux S+A
=
workers (given) L
400 + 1200
Note: Replacements and New Recruitments =
are not relevant for calculation, in this 8000
= 20%
question.
Note: Even if number of Accessions is not specified in the question, it can be calculated
as -
Accessions = No. of Workers at end + No. of Separations - No. of Workers at beginning
= 8,400 + 400 − 7,600 = 𝟏, 𝟐𝟎𝟎.

Q2. Labour Turnover Rates - Specified Methods N 08

The following information is collected from the Personnel Department of ST Ltd
for the year ending 𝟑𝟏st March.
Number of workers at the beginning of the year 8,000
Number of workers at the end of the year 9,600
Number of workers left the Company during the year 500
Number of workers discharged during the year 100
 Number of workers replaced due to left and discharges 700
1,500
Additional workers employed for expansion during the year
Calculate Labour Turnover Rate by using Separation Method, Replacement
Method and Flux Method.
Solution:
Basic Calculations Lab. T/O Formula & Answer
Method
1. Average Labour Force = L = Separation S 600
= = = 6.82%
8000 + 9600 L 8800
= 8,800 workers.
2

2. Number of Separations = S = Left + Replacement R 700

= =
Discharged L 8800
= 7.95%
= 500 + 100 = 600 workers.
3. No. of Accessions = A = Replacements Flux S+A
=
+ New Recruitments = 700 + 1,500 = L
2,200 workers. 600 + 2200
=
8800
= 31.82%
Note: Alternatively, Accessions can be calculated as -
= No. of Workers at end + No. of Separations - No. of Workers at beginning = 9,600 +
600 − 8,000 = 𝟐, 𝟐𝟎𝟎 workers.

Q3. Labour Turnover Rates - Monthly & Annual M. 18 (New)

The information regarding number of employees on roll in a Shopping Mall for
the month of December are given below
Number of Employees as on 1 st December 900
Number of Employees as on 31st December 1,100
During December, 40 Employees resigned and 60 Employees were discharged.
300 Employees were recruited during the month. Out of these 300 Employees,
225 Employees were recruited for an expansion project of the Mall and rest were
recruited due to exit of employees.
Assuming 365 days in a year, calculate Employee Turnover Rate and Equivalent
Annual Employee Turnover Rate by applying the following - (1) Replacement
Method, (2) Separation Method, and (3) Flux Method.
Solution:
1. Basic Computations (all numbers represent Number of Employees)
(a) Average Labour Force (L) = 1/2 of (Workers at = ½ of (900 +
beginning +Workers at end) 1,100) = 1,000
(b) Number of Separations (S) = Employees Resigned + = 40 + 60 = 100
Employees Discharged
(c) Number of Replacements (R) = Given 75
 (d) Number of Accessions (A) = Given 300
2. Labour Turnover Rates for the month and Annualised Rates
Method Employee T/O Rate for the month Annualised Rate =
365
T/O × 31
Replacement Number of Replacements 75 365
= = 7.5% ×
Average Labour Force 1,000 31
= 𝟕. 𝟓% = 𝟖𝟖. 𝟑𝟏%
Separation Number of Separations 100 365
= = 10% ×
Average Labour Force 1,000 31
= 10% = 117.74%
Flux Separations + Accessions 365
= 40% ×
Average Labour Force 31
100 + 300 = 𝟒𝟕𝟎. 𝟗𝟕%
= = 𝟒𝟎%
1,000

Q4. Labour Turnover Rates - Monthly and Annual M. 21 (New)

Following information is given of a newly setup organization for the year
ended 31st March.
Number of Workers replaced during the period 50
Number of Workers left and discharged during the period 25
Average Number of Workers on the roll during the period 500
You are required to compute the -
1. Employee Turnover Rates using Separation Method and Flux Method.
2. Equivalent Employee Turnover Rates for (1) above, given that the organization
was setup on 𝟑𝟏st January.
Solution: Note: Separations (S) = Employees Left and Discharged = Given = 25
In this case, "Flux" Method represents the combination of Separations and
Replacements, i.e. Mixed Method.
For Annualisation of Rate, the period is Feb 28 + March 31 = 𝟓𝟗 days.
(Alternatively, 2 months may be taken.)
Labour Turnover Rates for the month and Annualised Rates
Method Employee T/O Rate for the period Feb & Annualised Rate = T/
Mar 365
O × 59
Separation = Number of Separations 25 365
= = 𝟓% 5% × = 𝟑𝟎. 𝟗𝟑%
Average Labour Force 500
59
Flux Separations + Replacements 25+50 365
= = = 𝟏𝟓% 15% × = 𝟗𝟐. 𝟖𝟎%
Average Labour Force 500
59
Q5. Labour Turnover Rates N 15
Human Resources Department of A Ltd computed Labour Turnover by
Replacement Method at 𝟑% for the quarter ended June. During the quarter, fresh
recruitment of 𝟒𝟎 workers was made. The number of workers at the beginning
and end of the quarter was 990 and 1010 respectively. Calculate the Labour
Turnover Rate by Separation Method and Flux Method.
Solution:
990+1,010
(a) L = Average Labour Force = = 1,000
2
R R
(b) Labour Turnover by Replacement Method = 3% (Given). So, = = 3%.
L 1,000
So, 𝐑 = 𝟑𝟎.
(c) A (Accessions) = Replacements + New Recruitments = R + N = 30 + 40 = 70
(d) Also, A = No. of Workers at the end of the Period + No. of Separations (−) No of
Workers at the Beginning of the Period From the above equation, 70 = 1,010 +
S(−)990. So, 𝐒 = 𝟓𝟎
(e) Labour Turnover Rates are computed as under -
S 50 S+R+N 50+30+40
(i) Separation Method: L = = 5% (ii) Flux Method: = = 12%
1,000 L 1,000

Q6. Labour Turnover Rates M 17

RST Ltd has computed Labour Turnover Rates for the quarter ended 𝟑𝟏st March
as 20%, 10% and 5% under Flux Method, Replacement Method and Separation
Method respectively. If the number of workers replaced during that quarter is
𝟓𝟎, find out (i) Workers Recruited and Joined, (ii) Workers Left and Discharged
and (iii) Average Number of Workers on Roll.
Solution:
R 50 50
1. Replacement Method Rate = = = 10%. So, L = = 500 = Average
L L 10%
Number of Workers on Roll.
S S
2. Separation Method Rate = = = 5% (given). So, S = 500 × 5% = 25 =
L 500
Workers Left and Discharged.
S+A 25+A
3. Flux Method Rate = = = 20%. On solving, A = 75 = Workers
L 500
Recruited and Joined.

Q7. Labour Turnover Rate - Reverse Working N 12, N 13

The rate of change of labour force in a Company during the year ending 31 st
March was calculated as 13%, 8% and 5% respectively under 'Flux Method',
Replacement Method’and’Separation Method'. The number of workers
separated during the year is 40. You are required to calculate:
(i) Average Number of Workers on roll. (ii) Number of Workers replaced during
the year.
(iii) Number of New Accessions, i.e. New Recruitment. (iv) Number of workers
at the beginning of the year.
Solution:
 S 40 40
1. Separation Method Rate = = = 5% (given). So, L = = 800.
L L 5%
R R
2. Replacement Method Rate = = = 8%. So, R = 800 × 8% = 64.
L 800
S+R+N 40+64+N
3. Flux Method Rate = = = 13%. On solving, N = 0.
L 800

Let the Number of Workers at the beginning be X and at the end be Y. So, Average
X+Y
Labour Force (L) = 2 = 800.
Thus, Y + X = 1600 ––––––––––––––––––––––––––––––––– Equation (1)
Also, Accessions = No. of Workers at the end + No. of Separations (−) No. of
Workers at the beginning.
So, Accessions = Replacements + New Recruitments = R + N = 64. So, we have,
64 = Y + 40 − X
Y + 40 − X = 64. Y − X = 24 ––––––––––––––––––––––––––––––––– Equation (2)
On solving the above equations, we get X = 788, Y = 812.
Answer:
(i) Average Number of Workers on Roll = 800
(iii) Number of New Accessions, i.e. New Recruitment = 0
(ii) Number of Workers replaced during the year = 64
(iv) Number of Workers at the beginning of the year = 788.

Q8. Labour Turnover Rates - Reverse Working RTP

Query Consultancy Ltd is engaged in BPO industry. One of its Trainee
Executives in the Personnel Department has calculated Labour Turnover Rate
𝟐𝟒. 𝟗𝟐% for the last year using Flux method.
Following is the some data provided by the Personnel Department for the last
year:
Employees At the Joined Left At the
beginning end
Voice Agents ? 20 20 ?
Assistant Managers ? 20 - 30
Senior Voice Agents 4 - - 12
Senior Data Processors 8 - - 34
Team Leaders ? - - ?
Employees transferred from
the Subsidiary Company
Senior Voice Agents — 8 — —
Senior Data Processors — 26 — —
Employees transferred to the
Subsidiary Company
 Team Leaders — — 60 —
Assistant Managers — — 10 —
At the beginning of the year there were total 772 Employees on the Payroll of
the Company. The opening strength of the Supervisors, Voice Agents and
Assistant Managers were in the ratio of 𝟑: 𝟑: 𝟐.
The Company has decided to abandon the post of Team Leaders and
consequently all the Team Leaders were transferred to the Subsidiary Company.
The Company and its Subsidiary are maintaining separate set of books of
account and separate Personnel Department.
(a) Calculate the Labour Turnover Rate using Replacement Method and
Separation Method.
(b) Verify the Labour Turnover Rate calculated under Flux Method by the
Trainee Executive.
Solution:
1. Computation of Employees at the beginning and end of the year, Category-
wise
Category At Beginning of At end of the Net
the year year Chang
Data Processors Given = 540 Given = 1,560 +102
Payroll Processors [Left 60 + 80 Given = 40 -4(
Closing 40-Joined 20]
Supervisors Note 1 = 30 Note 2 = 90 +60
Voice Agents Note 1 = 30 Note 2 = 30 Ni
Assistant Managers Note 1 = 20 Given = 30 +10
Senior Voice Agents Given = 4 Given = 12
Senior Data Processors Given = 8 Given = 34 +26
Team Leaders Transfer to All Transferred, -60
Subsidiary = 60 So = 0
Total Given 𝟕𝟕𝟐 1,796 +1,02
Note:
1. At the beginning of the year:
(a) Total of Supervisors, Voice Agents and Asst. Managers = [772 − {540 + 80 +
4 + 8 + 60} = 80 Employees]
3 3
(b) Apportioned in [Link], Hence, Supervisors: 80 × 8 = 30, Voice Agents: 80 × 8 =
2
30 & Asst. Managers: 80 × 8 = 20.
2. At the end of the year:
(a) Supervisors = (Opening 30 + Joined 60) = 90, (b) Voice Agents = (Opening
30 + Joined 20 − Left 20) = 30
 2. Computation of Employees Separated, Replaced and Newly Recruited
during the year
Note:
• Since the Company and its Subsidiary are maintaining separate Personnel
Departments, the transfer-in and transferout are treated as Recruitment and
Separation respectively.
• Separations (S) and Accessions (A) are given in the Question itself.
• Accessions (A) = Replacement (R) + New Recruitments (N). Here, Accessions are
given and Replacements (R) are computed by comparing with Separations (S), and
Net Change in the Labour Force as per WN 1. For example -
(a) Data Processors: 60 Left (Separations), and hence taken as fully replaced with 60
persons.
(b) Payroll Processors: 60 left, but Labour Force at end is less by 𝟒𝟎 persons. Hence,
Replacement = only 20 persons.
• After computing Replacements (R) as above, New Recruitment (N) = Accessions
(A) - Replacements (R).
Particula Separations (S) New RecruitmentReplacement Assertions (A) = Total
rs (Given) (N) (R) Joined (Given)
Data 60 1,020 60 1,080
Processo
rs
Payroll 60 - 20 20
Processo
rs
Supervis - 60 - 60
ors
Voice 20 - 20 20
Agents
Assistant Transferred = 10 10 20
Manager =
s
Senior - 8 - Note 1 = 8
Voice
Agents
Senior - 26 - Note 1 = 26
Data
Processo
rs
Team Transferred = - - -
Leaders 60
Total 𝟐𝟏𝟎 𝟏, 𝟏𝟐𝟒 𝟏𝟏𝟎 𝟏, 𝟐𝟑𝟒
3. Computation of Labour Turnover Rates
 772+1,796
(a) Average Labour Force = = 𝟏, 𝟐𝟖𝟒 Employees.
2
Number of Replacements 110
(b) Labour Turnover Ratio by Replacement Method = = =
Average Labour Force 1,284
𝟖. 𝟓𝟕%
Number of Separations 210
(c) Labour Turnover Ratio by Separation Method = = =
Average Labour Force 1,284
𝟏𝟔. 𝟑𝟔%
Number of Separations + Accessions
(d) Labour Turnover Ratio by Flux Method = =
Average Labour Force
210+1,234
= 𝟏𝟏𝟐. 𝟒𝟔%
1,284

Conclusion: Labour Turnover of 24.92% calculated by the Executive Trainee of the

Personnel Department is not correct. It has been taken as Separation + Replacement
= 16.36% + 8.57% = 24.92% and he has not taken the Number of New Recruitments,
in using the Flux Method.

Q9. Loss of Profit due to Labour Turnover Similar to RTP, N 86, N 97, M 98, N 01
The management of Come-In & Go-Out Ltd are worried about their increasing
Labour Turnover in the Factory and before analyzing the causes and taking
remedial steps, they want to have an idea of the profit foregone as a result of
labour turnover in the last year.
Last year Sales amounted to ₹ 1,66,06,600 and the GP ratio was 20%. The total
number of actual hours worked by the Direct Labour force was 8.84 Lakhs. As a
result of the delays by the Personnel Department in filling vacancies due to
Labour Turnover, 2,00,000 potentially productive hours were lost. The actual
direct labour hours included 60,000 hours attributable to training new recruits,
out of which 𝟒𝟎% of the hours were unproductive.
The cost incurred consequent on labour turnover revealed on analysis the
following -
• Settlement Cost due to leaving ₹ 87,640 • Selection Costs ₹ 32,812
• Recruitment Costs ₹ 53,480 • Training Costs ₹ 60,980
Assuming that the potential production lost as a consequence of Labour
Turnover could have been sold at prevailing prices, find the profit foregone
last year on account of Labour Turnover.
Solution:
1. Actual hours worked last year 8,84,000
hours
2. Unproductive Training Hours = 40% of 60,000 24,000
hours
3. Actual Productive Hours worked last year 8,60,000
hours
4. Sales per productive hour worked =
1,66,06,600 ₹ 19.31 per
8,60,000
hour
5. Gross Profit (or Contribution) per productive hour = 20% of Sales ₹ 3.862 per
 ₹ 19.31 hour
6. Total Labour Hours lost due to Labour Turnover = 2,00,000 2,24,000
(given) +24,000 (unproductive training) hours
7. Gross Profit foregone due to Labour Turnover = ₹ 3.862 × ₹ 8,65,088
1,24,000 hours
8. Additional Expenses incurred due to Labour Turnover (Settlement ₹ 2,34,912
Cost 87,640 + Recruitment Cost 53,480 + Selection Cost " 32,812 +
Training Cost 60,980)

9. Total Profit foregone due to Labour Turnover (7 + 8) ₹ 11,00,000

Note: Alternatively, GP foregone can be calculated for potentially productive hours of
2,00,000 hours only.

Q10. Profit foregone due to Labour Turnover N 19

ABC Limited is facing the problem of increasing Labour Turnover in the Factory.
The Management is willing to analyse the causes and take remedial steps.
Last year, Sales of the Company amounted to ₹ 12,18,49,320 and the PV Ratio
was 25%. The total number of actual hours worked by the Direct Labour force
was 5.75 Lakhs. The Company lost 1,25,000 potentially productive hours due to
delay in filling vacancies caused by Labour Turnover. The actual direct labour
hours included 60,000 hours attributable to training of new recruits, out of which
30% of the hours were unproductive.
The accounting records reveal the following costs incurred consequent to
Labour Turnover:
Recruitment ₹ 5,36,300 Training Costs ₹ 4,25,000
Costs
Selection Costs ₹ 2,78,400 Settlement Costs due to ₹ 7,18,800
leaving.
Assuming that the potential production lost as a consequence of Labour
Turnover could have been sold at prevailing prices, find out the Contribution
and Profit foregone by the Company in the last year due to Labour Turnover.
Solution:
1. Actual hours worked last year 5,75,000
hours
2. Unproductive Training Hours = 30% of 60,000 18,000
hours
3. Actual Productive Hours worked last year 5,57,000
hours
4. Sales per productive hour worked = 12,18,49,320/5,57,000 ₹ 218.76
per hour
5. Contribution per productive hour = 25% of Sales ₹ 218.76 ₹ 54.69 per
hour
 6. Total Labour Hours lost due to Labour Turnover = 1,25,000 1,43,000
(given) +18,000 (unproductive training) hours
7. Contribution foregone due to Labour Turnover = ₹ 54.69 × ₹ 78,20,670
1,43,000 hours
8. Additional Expenses incurred due to Labour Turnover = ₹ 19,58,500
(Recruitment Cost 5,36,300 + Selection Cost 2,78,400 + Training
Cost 4,25,000 + Settlement Cost 7,18,000)
9. Total Profit foregone due to Labour Turnover (7 + 8) ₹ 97,79,170
Note: Alternatively, Contribution foregone can be calculated for potentially productive
hours of 1,25,000 hours only.

2. Time and Piece Rate Systems

Q11. Piece Rate System M 98, M 07

Calculate Efficiency and Total Earnings of workers A, B and C under Straight
Piece Rate System, from the following data -
• Normal Rate per Hour ₹ 60, Standard Time per unit - 1 Minute.
• Output in a 8-hour day is as follows: Worker A - 300 units, Worker B - 480
units, Worker C - 600 units.
Solution:
Since Std Time per unit = 1 minute, Normal Piece Rate = ₹ 60ph ÷ 60 pieces ph =
₹ 1 per unit.
System Computation A B C
Efficiency: [Note: Std Actual Output 300 480 600
× 100 × 100 × 100
Output = 8 × 60 = 480 uts] Std Output 480 480 480
× 100 = 62.5% = 100% = 125%
Piece Rate Wages Actual Output × 300 × 1 480 × 1 600 × 1
Rate p.u. = ₹ 𝟑𝟎𝟎 = ₹ 𝟒𝟖𝟎 = ₹ 𝟔𝟎𝟎

Q12. Company's Own System based on Efficiency RTP

Mr. X had been allotted a work which had to be completed within 80 hours. He
took 74 hours to complete the work. The Company pays Incentive Bonus of 10%
on the Hourly Rate if Standard Time is achieved, and an further Incentive Bonus
of 2% on Hourly Rate for each 1% in excess of 100% Efficiency is payable. The
Normal Wage Rate is ₹ 30 per hour. Calculate the Effective Wage Rate per hour
worked and Total Wages to be paid to Mr. X.
Solution:
₹
Standard Time 80 hours
1. Efficiency = Actual Time Taken × 100 = 74 hours × 100 = 108% (approx.)

2. Computation of Effective Hourly Rate:

 Normal Wage Rate per hour 30.00
Add: Incentive Bonus for work completed within standard time i.e. 10% of 3.00
Rs.30.00
Add: Incentive Bonus for efficiency i.e. 2% for every 1% efficiency (108 - 100) 4.80
× 2% or 16% of Rs.30.00
Effective Hourly Rate 37.80
3. Total Wages of Mr. X = 74 hours × Rs. 37.80 = 2,797.20

3. Halsey and Rowan Systems

Q13. Halsey and Rowan Schemes RTP, M 95, N 98, M 08, M 11

You are given the following information of Worker X. Worker X worked 9 hours
a day.
Ticket No. : 002 Work done and : 2,000 units
approved
Work : 𝟏st April at 8 AM Time and units : 40 units per
started allowed hour
Work : 𝟓th April at 12 noon Wage Rate : ₹ 25 per hour
finished
Work Production of 2,160 Bonus : 40% of time
allotted units saved
You are required to calculate the remuneration of the worker on the following
basis: (1) Halsey Plan, and (2) Rowan Plan.
Solution: Note: Assumed that Office/Factory Hours starts at 8 AM
2,000 units
Standard Time for 2,000 units = 40 units p.h.

= 50 hours
Actual time taken = (9 hrs × 4 days i.e. 1st to 4th April ) + (4 hrs ×
1 day i.e. 5th April )
= 40 hours
Time Saved 10 hours
System Computation of Total Wages
Halsey = (Hours worked × Rate p. h) + (50% × Time Saved × Rate p. h. )
= (40hrs × ₹ 25) + (40% × 10hrs × ₹ 25) = ₹ 1,000 + ₹ 100 = ₹ 𝟏, 𝟏𝟎𝟎
Actual Hours
= (Hours worked × Rate p.h)+( Stan dard Hours × Time Saved × Rate p.h.)

Rowan 40hrs
= (40hrs × ₹ 25) + ( × 10hrs × ₹ 25) = ₹ 1,000 + ₹ 200
50hrs
= ₹ 𝟏, 𝟐𝟎𝟎
Note:
• Alternatively, the actual time can be taken as 5 days ×9 hours = 45 hours assuming
the worker is paid for the whole day although the work is finished at 12 Noon.
• In this question, Halsey Bonus is taken at 40% as per the question, and not 50% as
per the general formula.

Q14. Halsey and Rowan Schemes M 21 (Old)

A Skilled Worker engaged in machining of Component "WYE" receives an ordinary
wage rate of ₹ 504 per day of 8 hours. The Standard Output for machining the
Component has been fixed at 64 pieces per hour (time as fixed for Premium Bonus).
In a certain week of 48 hours, the Output of the Worker on this Machine is 3,456
pieces. You are required to calculate the Total Weekly Earnings of the Worker
under the following - (1) Rowan Premium Bonus System, (2) Halsey Premium Plan,
(3) If a Bonus of ₹ 1.50 is paid per piece in excess of Standard Output.
Solution:
1. Basic Computations
(a) Wage Rate per hour = ₹ 504 ₹ 63 ph
8 hours

(b) Time Saved = Std Time (−) Actual Time = 3,456 units 6 hours
i.e. 54
64 units ph
hours less 48 hours worked
(c) Standard Output in 48 hours = 48 hrs × 64 units ph 3,072 units

[Link] under different systems

System Computation of Total Wages
Rowan Actual Hours
= (Hours worked × Rate p.h) + ( Standard Hours × Time Saved ×
Rate p.h.)
48hrs
= (48hrs × ₹ "₹ 63) + (54hrs × 6hrs × ₹ 63) = ₹ 3,024 + ₹ 336 = ₹
3,360
Halsey = (Hours worked × Rate p.h) + (50% × Time Saved × Rate p.h.)
= (48hrs × ₹ 63) + (50% × 6hrs × ₹ 63) = ₹ 3,024 + ₹ 189 = ₹ 3,213
Piece = (48hrs × ₹ 63) + [(3,456 − 3,072) units × ₹ 1.50pu] = ₹ 3,024 +
Bonus ₹ 576 = ₹ 3,600

Q15. Halsey and Rowan - Comparative Analysis M 91, M 10

The time allowed for a job is 8 hours. The hourly rate is ₹ 8. Prepare a statement
showing (a) Bonus earned, (b) Total Earnings of workers, & (c) Hourly earnings,
under Halsey & Rowan System, for each hour saved progressively.
Solution:
Comparative Statement of Halsey and Rowan Schemes
 Situation I II III IV V VI VII VIII
a. Standard Time 8 8 8 8 8 8 8 8
(hours)
b. Time saved (hours) 0 1 2 3 4 5 6 7
c. Actual Time (hours) 8 7 6 5 4 3 2 1
d. Basic Wages (c × 8) 64 56 48 40 32 24 16 8
e. Bonus - Halsey = 0 4 8 12 16 20 24 28
50% × (b) × 8
f. Bonus - Rowan = c/a 0 7 12 15 16 15 12 7
× (b) × 8
g. Total Earnings - 64 60 56 52 48 44 40 36
Halsey (d + e)
h. Total Earnings - 64 63 60 55 48 39 28 15
Rowan (d + f)
i. Rate per hour - 8.00 8.57 9.33 10.40 12.00 14.67 20.00 36.00
Halsey (g ÷ c)
j. Rate per hour - 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00
Rowan (h ÷ c)

Observations:
• Rowan System gives maximum bonus when Actual Time = 1/2 of Standard Time =
Time Saved. However, under Halsey System, bonus increases progressively as time
saved increases.
• Total Earnings under Halsey and Rowan System are the same when Actual Time =
1/2 of Standard Time = Time Saved.
• Workers' Earnings per hour rises at a faster rate in Halsey System than under Rowan
System.

Q16. When will a worker earn equal wages under Halsey and Rowan Schemes?
M91
Solution: A worker can earn equal wages under Halsey and Rowan Schemes in the
following situations -
• There is no time saved (i.e. no Bonus).
• Actual Time = Time Saved = 1/2 of Standard Time.

Q17. Halsey and Rowan Plans - Cost Saving to Employer

The standard time required to complete a product is 20 hours. The wage rate per
hour is ₹ 50. The actual time taken to complete the product is 13 hours and the
Factory Overhead Charges are 80% of the standard time. Compute the employer
saving and effective rate of earning per hour under Halsey and Rowan plans.
Solution: Since Standard Time = 20 Hours and Time Taken = 13 hours, Time
saved = 7 hours.
Particulars Halsey Rowar
1. Basic = Hours Worked × Rate 13 × 50 = 650.00 13 × 50 = 650.00
per hour
2. Bonus: Rowan: 50% 13/20 × 7 × 50 =
Actual Hours
(Stan dard Hours × Time Saved × R × Time Saved × Rate p.h 227.50
=
ph)
50% × 7 × 50 = 175.00
3. Total Wages = (1 + 2) 825.00 𝟖𝟕𝟕. 𝟓𝐂
4. Actual Hours worked 13 hours 13 hours
5. Effective Rate of Earnings per 63.46 67.50
hour = (3 ÷ 4)
6. Standard Time Wages = (20 1,000.00 1,000.00
Hours × ₹ 50)
7. Labour Cost Saved = Std 175.00 122.50
Wages - Actual Wages = (6 −
3)
8. OH Cost Saved = 280.00 280.00
Standard OH − Actual OH
= (20 × 50 × 80%) less (13
× 50 × 80%)
9. Total Cost Savinas to 455.00 402.50
Emplover = Labour +OH = (7 +
8)

Q18. Rowan to Halsey - Effect of change N 09, M 09

Standard Time for a job is 90 hours. The hourly rate of guaranteed wages is ₹
50. Because of saving in time, Worker A gets an effective hourly rate of ₹ 60
under Rowan Premium Bonus System. For the same saving in time, calculate
the hourly rate of wages that Worker B will get under Halsey Premium Bonus
System, assuming 𝟒𝟎% to worker.
Solution:
Let Actual Hours worked be H hours.
• Basic Wage Rate is ₹ 50 per hour, while Effective Hourly Rate (under Rowan
Scheme) is ₹ 60 per hour.
• Hence, the additional ₹ 10 per hour is attributed to Bonus under Rowan Scheme.
Actual Hours
• So, Rowan Bonus = ( × Time Saved × Rate p.h.) = ₹ 10 × H hours.
Std. Hours
H
• On substitution, we have, 90 × (90 − H) × 50 = 10H. Simplifying and solving, we
have 𝐇 = 𝟕𝟐 hours.
• Total Wages under Halsey Scheme = (Hours Worked × Rate ph) +
(Given 40% × Time Saved × Rate ph)
= (72 hours × ₹ 50ph) + [40% × (90 − 72) × ₹ 50ph] = ₹ 3,960.
• Effective Hourly Rate under Halsey Scheme = ₹ 3,960 ÷ 72 hours = ₹ 𝟓𝟓 per
hour.

Q19. Rowan and Halsey Systems - Effect of Change N 17

A Skilled Worker is paid a guaranteed wage rate of ₹ 150.00 per hour. The
standard time allowed for a job is 50 hours. He gets an effective hourly rate of
wages of ₹ 180.00 under Rowan Incentive Plan due to saving in time. For the
same saving in time, calculate the hourly rate of wages he will get, if he is placed
under Halsey Premium Scheme (50%).
Solution: Let Actual Hours worked be H hours.
• Basic Wage Rate is ₹ 150 per hour, while Effective Hourly Rate (under Rowan
Scheme) is ₹ 180 per hour.
• Hence, the additional ₹ 30 per hour is attributed to Bonus under Rowan Scheme.
Actual Hours
• So, Rowan Bonus = ( × Time Saved × Rate p.h.) = ₹ 30 × H hours.
Std Hours
H
• On substitution, we have, 50 × (50 − H) × 150 = 30H. Simplifying and solving, we
have 𝐇 = 𝟒𝟎 hours.
• Total Wages under Halsey Scheme = (Hours Worked × Rate ph) + (50% × Time
Saved × Rate ph)
= (40 hours × ₹ 150ph) + [50% × (50 − 40) × ₹ 150ph] = ₹ 6,750.
• Effective Hourly Rate under Halsey Scheme = ₹ 6,750 ÷ 40 hours = ₹ 𝟏𝟔𝟖. 𝟕𝟓
per hour.

Q20. Halsey and Rowan N 21 (New)

A Skilled Worker is paid a guaranteed Wage Rate of ₹ 150 per hour. The Standard
Time allowed for a job is 10 hours. He took 8 hours to complete the job. He has
been paid the wages under Rowan Incentive Plan. You are required to:
1. Calculate the Effective Hourly Rate of Earnings under Rowan Incentive Plan.
2. Calculate the time in which he should complete the job, if the Worker is placed
under Halsey Incentive Scheme (𝟓𝟎%) and he wants to maintain the same
Effective Hourly Rate of Earnings.
Solution:
1. Total Wages under Rowan Scheme = (Hours worked × Rate p.h) +
Actual Hours
( Standard Hours × Time Saved × Rate p.h.)
(Note: Time Saved = Std - Actual = 10 − 8 = 2 hrs) = (8hrs × ₹ 150) +
8hrs
(10hrs × 2hrs × ₹ 150) = ₹ 1,200 + ₹ 240 = ₹ 1,440
₹ 1,440
2. Effective Hourly Rate of Earnings under Rowan Scheme = = ₹ 𝟏𝟖𝟎 p.h.
8hrs

3. For Halsey Scheme:

Let Actual Hours worked be H hours.
• Basic Wage Rate is ₹ 150 per hour, while Effective Hourly Rate (as above under
Rowan = under Halsey) is ₹ 𝟏𝟖𝟎 𝐩𝐡.
• Hence, the additional ₹ 30 per hour is attributed to Bonus under Halsey Scheme.
• So, Halsey Bonus = (50% × Time Saved × Rate p.h.) = ₹ 30 × H hours. Now,
Time Saved = Std − Actual = (10 − H)
• On substitution, we have, 50% × (10 − H) × 150 = 30H. Simplifying, we have
75 × (10 − H) = 30H.
750 50
• So, 750 − 75H = 30H Thus, 105H = 750, So, H = = 𝟕. 𝟏𝟒𝟐𝟖𝟓𝟕 hours (or)
105 7
hours
To Check:
• Total Wages under Halsey Scheme = (Hours Worked × Rate ph) + (50% × Time
Saved × Rate ph)
50 50
= ( hours × ₹ 150ph) + [50% × (10 − ) × ₹ 150ph]
7 7
9,000
= ₹ (or) ₹ 𝟏, 𝟐𝟖𝟓. 𝟕𝟏𝟒.
7
9,000 50
• Effective Hourly Rate under Halsey Scheme = ₹ ÷ hours = ₹ 180 per hour
7 7
= same as under Rowan.

Q21. Effect of Halsey and Rowan on Profits M 02

The Finishing Shop of a Company employs 60 direct workers. Each worker is
paid ₹ 400 as wages per week of 40 hours. When necessary, overtime is worked
upto a maximum of 15 hours per week per worker at time rate plus one-half as
premium.
The current output on an average is 6 units per man-hour, which may be
regarded as standard output. If Bonus Scheme is introduced, it is expected that
the output will increase to 8 units per man-hour. The workers will, if necessary,
continue to work overtime upto the specified limit although no premium or
incentives will be paid.
The Company is considering introduction of either Halsey or Rowan Scheme of
Wage incentive system. The budgeted weekly output is 19,200 units.
The Selling Price is ₹ 11 per unit and the Direct Material Cost is ₹ 8 per unit. The
Variable 𝐎𝐇 amount to ₹ 0.50 per Direct Labour Hour and the Fixed Overhead is
₹ 𝟗, 𝟎𝟎𝟎 per week.
Prepare a statement to show the effect on the Company's weekly profit of the
proposal to introduce - (a) Halsey Scheme, and (b) Rowan Scheme.
Solution: 1. Effect of increase in efficiency on Overtime work
(a) Present Standard Hours required to produce 19,200 units 3,200 hours
(19,200 units ÷ 6 units per hour)
(b) Normal Available Hours per week (60 employees × 40 hours) 2,400 hours
(c) Present Overtime work (paid at normal +50% rate) [a − b] 800 hours
(d) Standard Hours required after introduction of Bonus Scheme 2,400 hours
(19,200 units ÷ 8 units per hour)
(e) Overtime work required after introduction of Bonus Scheme Nil
[d − b]
(f) Hence, Time saved after introduction of Bonus Scheme 𝟖𝟎𝟎 hours
2. Computation of Labour Cost under Halsey & Rowan Schemes
System Basic Bonus Total
Halsey Hours worked × Rate p. h. 50% × Time Saved × Rate ₹ 28,000
= 2,400 × 10 = ₹ 24,000 p. h = 50% × 800 × 10 =
₹ 4,000
Rowan Hours worked × Rate p.h. Actual Hours
× Time Saved × Rate ₹ 30,000
= 2,400 × 10 = ₹ 24,000 Std Hours
2,400
p.h. = × 800 × 10 =
3,200
₹ 6,000
Note: Wage Rate per hour = ₹ 400 for 40 hours per week = ₹ 10 per hour.
Present Total Wages = (2,400 hours × ₹ 10ph) + (Overtime 800 hours × ₹ 15ph) =
₹ 36,000
3. Computation of Profit under present and proposed Halsey & Rowan
Schemes
Particulars Present Halsey Rowan
(a) Sales Revenue (19,200 2,11,200 2,11,200 2,11,200
units × ₹ 11)
(b) Direct Material Cost 1,53,600 1,53,600 1,53,600
(19,200 units × ₹ 8)
(c) Direct Wages Cost (WN 2) 36,000 28,000 30,000
(d) Variable OH (Actual Hrs 3,200 × 0.5 2,400 × 0.5 2,400 × 0.5
× ₹ 0.50 ph) = 1,600 = 1,200 = 1,200
(e) Fixed Overheads 9,000 9,000 9,000
(f) Total Cost: (b+c +d +e) 2,00,200 1,91,800 1,93,800
 (g) Profit (a - f) 𝟏𝟏, 𝟎𝟎𝟎 𝟏𝟗, 𝟒𝟎𝟎 𝟏𝟕, 𝟒𝟎𝟎

Q22. Choice of Incentive System - Halsey vs Rowan N 93, M 04, Jan 21 (New)
ZED Ltd is working by employing 50 skilled workers. It is considering the
introduction of an incentive scheme - either Halsey (with 𝟓𝟎% bonus) or Rowan
- of wage payment for increasing the labour productivity to cope up the
increasing demand for the product by 𝟒𝟎%. It is believed that proposed incentive
scheme could bring about an average 𝟐𝟎% increase over the present earnings
of the workers, it could act as sufficient incentive for them to produce more.
Because of this assurance, the increase in productivity has been observed as
revealed by the figures for April.
Hourly Rate of Wages (guaranteed) Rs. 30
Standard Time allowed for producing 1.975 hours
one unit by one worker at the previous
performance
Number of working days in the month 24 days per month
Number of working hours per day of 8 hours per day
each worker
Actual production during the month 6,120 units
1. Calculate the effective rate of earnings under the Halsey Scheme and the
Rowan Scheme.
2. Calculate the savings to ZED Limited in terms of Direct Labour Cost per
piece.
3. Advise ZED Limited about the selection of the scheme to fulfill its
assurance.
Solution: 1. Basic Calculations
• Present Labour Cost per unit = ₹ 30 × 1.975 hours = ₹ 59.25
• Standard hours for the actual output = 6,120 units × 1.975 = 12,087 hours
• Actual hours = 50 workers × 24 days × 8 hours = 9,600 hours
• Time Saved = Standard Hours - Actual Hours = 2,487 hours
2. Payments under Incentive Schemes
Particulars Halsey Rowan
1. Basic Wages = Hrs worked × Rate 9,600 hrs × ₹ 30 = 9,600 hrs ×
p.h. 2,88,000 ₹ 30 =
2,88,000
 2. Bonus: Rowan 50% × Time Saved × Rate p.h. 9,600
Actual Hours = 50% × 2,487 × 30 = 37,305 12,087
= × 2,487
Std Hours
× Time Saved × Rate ph × 30
= 59,258

3. Total Wages = (1) + (2) ₹ 3,25,305 ₹ 3,47,258

Particulars Halsey Rowan

4. Percentage of Bonus to Basic (2) ÷ 12.95% 20.58%
(1)
5. Effective Earnings per hour ₹ 3,25,305 ₹ 3,47,258
(Total Wages ÷ Actual hours worked) 9,600 hours 9,600 hours
= ₹ 33.89𝑝ℎ = ₹ 36.17𝑝ℎ
6. Direct Labour Cost per unit ₹ 3,25,305 ₹ 3,47,258
(Total Wages ÷ 6,120 units) 6,120 units 6,120 units
= ₹ 53.15𝑝𝑢 = ₹ 56.74𝑝𝑢
7. Savings in Direct Labour Cost p.u. ₹ 59.25 − ₹ 53.15 ₹ 59.25 − ₹ 56.74
= ₹ 𝟔. 𝟏𝟎 = ₹ 𝟐. 𝟓𝟏
Observations:
• Halsey Scheme provides a cost saving of ₹ 6.10 p.u. whereas Rowan Scheme saves
only ₹ 2.51 p.u.
• However, Halsey Scheme results in an increase of only 12.95% whereas Rowan
Scheme satisfies the minimum incentive requirement of 20%.
• The Company should adopt Rowan Scheme in order to fulfill its assurance to the
Union.
Standard Hours 12,087 Hours
• Efficiency Ratio = = = 125.91%, i.e. 25.91% increased
Actual Hours 9,600 Hours
output. To meet increased demand of 40%, the Company has to increase time usage
(Capacity Ratio), and/or Days worked (Calendar Ratio).

Q23. Rowan and Halsey - Missing figures M 09

Two workmen, A and B, produce the same product using the same material. A
is paid bonus according to Halsey Plan, while B is paid bonus according to
Rowan Plan. The time allowed to manufacture the product is 100 hours. A has
taken 60 hours and B has taken 80 hours to complete the product. The normal
hourly rate of wages of Workman A is ₹ 24 per hour. The total earnings of both
the workers are same. Calculate normal hourly rate of wages of Workman B.
Solution: Let hourly rate of Workman B be ₹ R per hour.
Particulars Workman A (Halsey) Workman B
(Rowan)
1. Time Saved = Standard hours - 100 - 60 - 40 hours 100 - 80 = 20 hours
Actual hours
2. Basic Wages = Hours worked × Rate 60 hrs × Rs. 24 = Rs. 80hrs × R = 80R
p.h. 1,440
3. Bonus = 50% × Time Saved × 50% × 40 × Rs. 24 = -
Rate p.h. Rs. 480
Actual Hours
( × Time Saved × Rate p.h.) – 80
(100 × 20 × R) =
Std Hours
16R
4. Total Wages = Basic + Bonus (2 + 3) Rs. 1,920 96R
5. Since Total Wages is the same for both workers, 96𝑅 = ₹ 1,920. Hence, 𝑹 =
₹ 20 per hour.

Q24. Reverse Working - Halsey & Rowan Schemes RTP

A Company has its factories at two locations. Rowan Plan is in use at location
A and Halsey Plan at location B. Standard Time and Basic Rate of wages are
same for a job, which is similar and is carried out on similar machinery. Time
allowed is 60 hours. Job at location A is completed in 36 hours while at location
B has taken 48 hours. Conversion Costs at respective places are ₹ 1,224 and ₹
1,500. Overheads are ₹ 20 per hour. From the above, (a) compute the normal
wage rate, and (b) compare the respective conversion costs.
Solution: 1. Let the Wage Rate of the workers be ₹ 𝑹 per hour. The wages at both
locations are as under -
Place Plan Std Time Time Basic Bonus Wages
Time Taken Saved
A Rowan 60 36 24 hours 36𝑅 36/60 × 24 × 𝑅 50.4𝑅
hours hours = 14.4𝑅
B Halsey 60 48 12 hours 48𝑅 50% × 12 × 𝑅 54𝑅
hours hours = 6𝑅

2. Conversion Costs (before computing Wage Rates)

Location A B
Labour (as above) 50.4R 54R
OH at ₹ 20 ph for 36 & 48 hrs ₹ 720 ₹ 960
Total Conversion Costs (given) ₹ 1,224 ₹ 1,500
3. Conversion Costs (after computing Wage Rates)
Location A B
Labour at ₹ 10 per hour ₹ 504 ₹ 540
OH at ₹ 20 per hour ₹ 720 ₹ 960
Total Conversion Costs (given) ₹ 1,224 ₹ 1,500
Solving any of the equations above, we get R = 10 p.h.

Q25. Rowan and Halsey - Simultaneous Equations N 97, N 07

Two workers ‘A’ and ‘B’ produce the same product using the same material.
Their normal wage rate is also the same. ‘A’ is paid bonus according to Rowan
Scheme while ‘B’ is paid bonus according to Halsey Scheme. The time allowed
to make the product is 50 hours. ‘A’ takes 30 hours while ‘B’ takes 40 hours to
complete the product. The Factory Overhead Rate is ₹ 5 per person-hour
actually worked. The Factory Cost of the product manufactured by ‘A’ is ₹ 3,490
and for the product manufactured by ‘B’ is ₹ 3,600. You are required to - (a)
Compute the Normal Rate of Wages and the Cost of Materials, (b) Prepare a
statement comparing the Factory Cost of the product as made by two workers.
Solution:
1. Let the Wage Rates be ₹ 𝐑 per hour for both workers. The wages can be
determined as under -
Worker Plan Std Actual Time Basic Bonus Wages
hrs hrs Saved
A Rowan 50 30 20 hours 30R 30/50 × 20 × R 42R
hours hours = 12R
B Halsey 50 40 10 hours 40R 50% × 10 × R 45R
hours hours = 5R
2. Cost Sheet (before computation of Materials & Wage Rates)
Particulars A B
Materials M M
Wages 42R 45R
Prime Cost M + 42R M + 45R
Add: POH at ₹ 5 ph 5 × 30 = 150 5 × 40 = 200
(given) Factory Cost 𝟑, 𝟒𝟗𝟎 𝟑, 𝟔𝟎𝟎
3. Cost Sheet (after computation)
Particulars A B
Materials 2,500 2,500
Wages 42 × 20 = 840 45 × 20 = 900
Prime Cost 3,340 3,400
Add: POH at ₹ 5 150 200
Factory Cost 3,490 3,600

From the above, we have 2 equations as under Alternative Method; It is given that
- Materials Cost is the same. Hence,
difference in Prime Cost is due to
Equation 1 M + 42 R = 3,340
 difference in wages only. So,
Equation 2 M + 45 R = 3,400
difference in Prime Cost (Factory
On subtraction, - 3 R = - 60 Cost less Factory OH) - Rs. 3,400 -
we qet Rs. 3,340 = Rs. 60 is due to
Hence, R = Rs. 20 per hour, So, M = Rs. 2,500. difference in wages of 45R - 42R =
3R. Solving the equation 3R = 60, we
get, R = 20 per hour.

Q26. Rowan and Halsey Plans - Finding out Missing Data N 19 (New)
Zico Ltd has its factory at two locations viz. Nasik and Satara. Rowan plan is
used at Nasik factory and Halsey plan at Satara factory. Standard Time and
Basic Rate of Wages are same for a job which is similar and is carried out on
similar machinery. Normal working hours is 𝟖 hours per day in a 5 day week.
Job in Nasik Factory is completed in 32 hours while at Satara Factory it has
taken 30 hours. Conversion Costs at Nasik and Satara are ₹ 𝟓, 𝟒𝟎𝟖 and ₹ 𝟒, 𝟗𝟓𝟎.
Overheads account for ₹ 25 per hour.
Required: (1) To find out the Normal Wage, and (2) To compare the respective
Conversion Costs.
Solution: 1. Let the Wage Rate of the workers be ₹ 𝐑 per hour. The wages at both
locations are as under -
Place Plan Std Time Time Basic Bonus Wages
Time Taken Saved
Nasik Rowan 40 32 hours 8 hours 32R 32/40 × 8 × R 38.4R
hours = 6.4R
Satara Halsey 40 30 hours 10 hours 30R 50% × 10 × R 35R
hours = 5R
Note: Standard Time = Normal Time = 8 hours per day in a 5 day week = 40 hours
2. Conversion Costs (before computing Wage Rates)
Location Nasik Satara
Labour (as above) 38.4R 35R
OH at ₹ 25 ph for 32 & 30 hrs ₹ 800 ₹ 750
Total Conversion Costs (given) ₹ 5,408 ₹ 4,950
3. Conversion Costs (after computing Wage Rates)
Location Nasik Satara
Labour at ₹ 120 per hour ₹ 4,608 ₹ 4,200
OH at ₹ 25 per hour ₹ 800 ₹ 750
Total Conversion Costs (given) ₹ 5,408 ₹ 4,950
Solving any of the equations above, we get R = 120 p.h.

Q27. Factory Cost of Job - Rowan vs Halsey Plans M 18 (New)

A worker takes 15 hours to complete a piece of work for which time allowed is
20 hours. His wage rate is ₹ 5 per hour. Following additional information are
also available:
Material Cost of work ₹ 50
Factory Overheads 100% of Wages
Calculate the Factory Cost of work under the following methods of wage
payments - (i) Rowan Plan, (ii) Halsey Plan.
Solution: Note: Since Standard Time = 20 Hours and Time Taken = 15 hours, Time
saved = 5 hours.
Particulars Rowan Halse
1. Direct Material Cost (given) 50.00 50.00
2. Direct Wages: Basic = Hours 15 × 5 15 × 5 = 75.00
Worked × Rate per hour = 75.00 50%
Bonus: Rowan: 15/20 × 5 × Time Saved × Rate p.h
Actual Hours × 5 = 18.75 =
( Standard Hours × Time Saved ×
R ph ) 50% × 5 × 5 = 12.50

Total Wages = (Basic + Bonus) 93.75 87.5

3. Prime Cost (1 + 2) 143.75 137.5
4. POH at 100% of Wages = Total (2) 93.75 87.5
5. Total Factory Cost (3 + 4) 237.50 225.0

Q28. Rowan vs Halsey - Effect of Incorrect Wage Rate RTP

Jigyasa Boutiques LLP (JBL) takes contract on job works basis. It works for
various Fashion Houses and Retail Stores. It has employed 26 workers and pays
them on time rate basis. On an average, an employee is allowed 2 hours for
Boutique Work on a piece of garment. In the month of March, two workers Ram
and Shyam were given 30 pieces and 42 pieces of garments respectively for
Boutique Work. The following are the details of their work:
Ram Shyam
Work assigned 30 pieces 42 pieces
Time Taken 28 hours 40 hours
Workers are paid Bonus as per Halsey System. The existing rate of wages is ₹
50 per hour. As per the new Wages Agreement, the workers will be paid ₹ 55 per
hour w.e.f. 1st April 2015. At the end of the month, the Accountant of the
Company has calculated Wages to these two workers taking ₹ 55 per hour.
Required:
(i) Calculate the amount of Loss that the Company has incurred due to incorrect
rate selection.
(ii) What would be the Loss incurred by JBL due to incorrect rate selection if it
had followed Rowan Scheme of bonus payment?
(iii) What is the amount that could have been saved if Rowan Scheme of Bonus
Payment is followed?
(iv) Do you think Rowan Scheme of Bonus Payment is suitable [Link]?
Solution:
1. Computation of Time Saved
Particulars (in hrs) Ram Shyam
Time allowed 30 Pieces × 2 hrs = 60 42 Pieces × 2 hrs = 84
Less: Time Taken 28 40
Time Saved 32 44
2. Loss due to incorrect rate selection, i.e. Excess of ₹ 55-50 = ₹ 5 per hour
Ram Shyam Total
(a) Basic Wages (28Hrs,× 5) (40Hrs.× 5) 340.0
= 140.00 = 200.00 0
(b) Bonus (Halsey Scheme) (50% × Time (50% × 32 Hrs. (50% × 44Hrs. × 190.0
saved × Excess Rate) × 5) = 80.00) 5) = 110.00) 0
(c) Excess Wages paid = Loss (Halsey (a + b) (a + b) = 310.00 𝟓𝟑𝟎. 𝟎𝟎
Scheme) = 220.00
(d) Bonus (Rowan Scheme) 28 40 179.4
( × 32 × 5) ( × 44 × 5)
TimeTaken 60 84 3
× Time Saved × Excess = 74.67 = 104.76
Time Allowed
Rate
(e) Excess Wages paid = Loss (Rowan (a + d) (a + d) = 304.76 519.4
Scheme) = 214.67 3
(f) Amount that could have been saved if 5.33 5.24 10.57
Rowan Scheme is followed (c-e) )
Conclusion: Rowan Scheme of Incentive Payment is suitable due to its benefits:

Q29. Halsey and Rowan Systems N 09

2 hours allowed to a worker to produce 5 units and wages has been paid at ₹ 25
per hour. In a 48 hours week, the worker produced 170 units. Calculate the Total
Earnings and Effective Hourly Rate of earning of the worker under the following
incentive wage systems - (a) Halsey 50% System, (b) Rowan System.
Solution:
Computation of Wages under different Schemes
Note: Standard Hours for 170 units = (170 units × 2/5) (since 2 hrs for 5 units) 68
hours
Less: Actual Hours (given) 48 hours
Time Saved 20 hours
System Computation of Total Wages Effective Earnings p.h
 Halsey = ( Hours worked × Rate p.h ) + ₹1,450
= ₹𝟑𝟎. 𝟐𝟏 p.h.
48 hours
(50% × Time Saved × Rate p.h )
= (48 × 25) + (50% × 20 × 25) = 1,200 +
250 = ₹𝟏, 𝟒𝟓𝟎

Rowan Actual Hours ₹1,553

= (Hours worked × Rate p.h) + ( Standard Hours = ₹𝟑𝟐. 𝟑𝟓 p.h.
48 hours
× Time Saved × Rate p.h.)
48
= (48 × 25) + (68 × 20 × 25) = 1,200 + 353 =
₹1,553

Q30. Rowan Plan N 11

X executes a piece of work in 120 hours as against 150 hours allowed to him.
His Hourly Rate is ₹ 𝟏𝟎, and he gets a Dearness Allowance of ₹ 30 per day of 8
hours worked in addition to his wages. You are required to calculate Total
Wages received by X under Rowan Premium Plan.
Solution:
Note: Number of Days worked = 120 hours ÷ 8 hours per day = 15 days.
Standard Hours 150 hours
1. Efficiency = = = 𝟏𝟐𝟓%. 2. Dearness Allowance = 15 days
Actual Hours 120 hours
× ₹ 30 = ₹ 450
Actual Hours
2. Rowan Scheme Wages = (Hours worked × Rate p.h.) + ( × Time
Std Hours
Saved × Rate p.h) + D.A
120
= (120 hours × ₹ 10) + ( × 30 × ₹ 10) + ₹ 450 = ₹ 1,200 + ₹ 240 + ₹ 450
150
= ₹ 𝟏, 𝟖𝟗𝟎

Q31. Wage Plans - Halsey, Rowan M 12

The Management of a Company wants to formulate an incentive plan for the
workers, with a view to increase productivity. The following particulars have
been extracted from the books of the Company.
• Piece Wage Rate ₹ 10
• Weekly Working hours 40
• Hourly Wages Rate (guaranteed) ₹ 40
• Standard / Normal Time taken per unit 15 minutes
• Actual Output for a week: Worker A 176 pieces, Worker B
140 pieces
• Under Halsey Scheme, Workers get a Bonus equal to 𝟓𝟎% of Wages of Time
Saved.
Calculate Earnings of Workers under Halsey's and Rowan's Premium Scheme.
Solution:
 1. Computation of Time Saved
Particulars Worker A Worker B
Standard/ 15 15
Normal time 176 Units × 140 Units ×
60 60
= 44 hours = 35 hours
Less: Actual (given) 40 hours (given) 40 hrs
Time Saved 𝟒 hours –
2. Earnings of Workers under Halsey's and Rowan's Premium Schemes
Particulars Worker A Worker B

(a) Hours worked × Rate p.h. (40hrs × ₹40) (40hrs × ₹40)

= ₹1,600 = ₹1,600

(b) Bonus under Halsey = 50% × Time (50% × 4hrs × ₹40) (No time saved)
Saved × Rate p.h. = ₹80 Nil
Actual Hrs 40 (No time saved)
(c) Bonus under Rowan = × ( × 4hrs × ₹40
Standard Hrs Nil
Time Saved × Rate p.h. 44
= ₹145.45

(d) Total Wages under Halsey's System ₹𝟏, 𝟔𝟖𝟎 ₹𝟏, 𝟔𝟎𝟎
(a) + (b)

(e) Total Wages under Rowan's System ₹𝟏, 𝟕𝟒𝟓. 𝟒𝟓 ₹𝟏, 𝟔𝟎𝟎
(a) + (c)

4. Different Schemes of Wage Payment

Q32. Halsey and Rowan + Time and Piece Rate M19 (New)
Z Private Limited allotted a Standard Time of 𝟒𝟎 hours for a job and the Rate
per hour is ₹ 75. The actual time taken by a worker is 30 hours. You are
required to calculate the total earnings under the following plans:
(1) Halsey Premium Plan (Rate 50%), (2) Rowan Plan, (3) Time Wage System,
(4) Piece Rate System.
Solution:
System Formula for Wages and Computation
Halsey Plan (50%) = (Hours Worked × Rate per hour)
+ 50% × Time Saved × Rate per hour
= (30hrs × ₹ 75ph) + [50% × (40 − 30)hrs × ₹ 75ph]
= ₹ 2,250 + ₹ 375 = ₹ 𝟐, 𝟔𝟐𝟓
Rowan Plan = (Hours Worked × Rate per hour)
Actual Hours
+(
Stan dard Hours
× Time Saved × Rate per hour )
 30hrs
= (30hrs × ₹ 75ph) + ( × (40 − 30)hrs × ₹ 75ph]
40hrs
= ₹ 2,250 + ₹ 562.5 = ₹ 𝟐, 𝟖𝟏𝟐. 𝟓𝟎
Time Wage = (Hours Worked × Rate per hour) = (30hrs × ₹ 75ph) =
System ₹ 𝟐, 𝟐𝟓𝟎
Piece Rate System = (Actual Output × Rate per unit) = Payment for Job as such =
(40 hrs ×₹ 75ph) = ₹ 3,000
Note: Alternatively, assume Standard Output per hour = 75
units, So, Piece Rate = ₹ 1p.u.
Job Work = (40hrs×75 units ph) = 3,000 units. So, Piece Rate
Wages = (3,000×₹ 1) = ₹ 3,000

Q33. Differential Piece Rate and Halsey Wage Payment Systems N 18

The following information of a work is given:
Weekly Working 45
Hours
Wage Rate per 8.00
Hour (₹)
Piece Rate per Unit 4.00
(₹)
Normal Time taken 20 Minutes
per piece
Normal Output per 100 Pieces
week
Actual Output per 120 Pieces
week
Differential Piece 𝟖𝟎% of Piece Rate when Actual Output is below Normal
Rate Output that is 100 pieces and 120% of
Piece Rate when Actual Output is above Normal
Output.

Calculate the earnings of a worker for a week under -1. Differential Piece Rate,
and 2. Halsey Premium Scheme (50% Sharing).
Solution:
Actual Output 120
1. Efficiency = = = 120%
Stan dard Output 100

2. So, Wages under Differential Piece Rate = Actual Output × 120% of Normal Rate
pu = 120 units × (120% of ₹ 4) = ₹ 576
20
3. Std Time for 120 units = 120 Units × 60 = 40 hours. Time Saved = Std Time - Actual
Time = 40 − 45 = Nil. (Note)
4. So, Halsey Scheme Wages = (Hours worked × Rate ph) + (50% × Time Saved ×
Rate ph) = (𝟒𝟓 hrs × ₹ 8) + Nil = ₹ 𝟑𝟔𝟎
Note: Alternative Assumption: Since 45 hours is the Normal Time for 100 Units Normal
Output, Standard Time may also be taken as proportionate time for 120 Units of
120
Output, i.e. 45 hrs × 100 = 54 hours. In such case, Time Saved = 54 − 45 = 9 hours.
Halsey Scheme Wages = (45 hrs × ₹ 8) + (50% × 9 hours × ₹ 8) = ₹ 396.

Q34. Time Rate, Piece Rate, and Rowan Scheme RTP, N 02

A Company is undecided as to what kind of wage scheme should be introduced.
The following particulars have been compiled in respect of three systems, which
are under the consideration of the management.
Worker A B C
Actual hours worked in a week 38 40 34
Hourly Rate of Wages ₹ 60.00 ₹ 50.00 ₹ 72.00
Production in units:
Product P (Standard time 12 minutes p.u.) 21 - 60
Product Q (Standard time 18 minutes p.u.) 36 - 135
Product R (Standard time 30 minutes p.u.) 46 25 -
For the purpose of piece rate, each minute is valued at ₹ 1. Calculate the wages
of each worker under -
1. Guaranteed hourly rates basis.
2. Piece Work Earnings Basis, but guaranteed at 75% of Basic Pay (Guaranteed
Hourly Rate) if his earnings are less than 𝟓𝟎% of Basic Pay.
3. Premium Bonus basis where the worker receives Bonus based on Rowan
Scheme.
Solution: 1. Computation of Time Saved under Rowan Scheme
Worker A B C
(21 units × (25 units × 30 (60 units × 12
12 min) + (36 units min) = 750 min) + (135
× 18
(a) Standard Time min) + (46 units × 18 min) = 3,150
30 min) = 2,280 min
min
= 52.50 hours min = 12.5 hours units
(b) Actual Time 38 hours 40 hours 34.00 hours
(c) Time Saved Nil Nil 𝟏𝟖. 𝟓𝟎 hours

2. Computation of Wages under different Schemes

System Computation A B C
 1. Time Rate = Hours 38 × 60 40 × 50 34 × 72 = ₹ 2,448
Wages worked × = ₹ 2,280 = ₹ 2,000
Rate p.h.

2. Piece Rate
Wages
(i) P at ₹ 12pu = Actual 21 × 12 - 60 × 12 = 720
Output × = 252
Rate p.u.
(ii) Q at ₹ 18pu = Actual 36 × 18 - 135 × 18 = 2,430
Output × = 648
Rate p.u.
(iii) R at ₹ 30pu = Actual 46 × 30 25 × 30 -
Output × = 1,380 = 750
Rate p.u.
(a) Total Piece Total of (i) to ₹ 2,280 ₹ 750 ₹ 3,150
Wages (iii) above
(b) 50% of = 50% of ₹ 1,140 ₹ 1,000 ₹ 1,224
Basic (1) Time basis
Wages
(c) 75% of = 75% of ₹ 1,710 ₹ 1,500 ₹ 1,836
Basic (1) Time basis
Wages
(d) Payment Either (a), or ₹ 𝟐, 𝟐𝟖𝟎 ₹ 1,500 ₹ 3,150
(c) if a < b
3. Rowan
System
(i) Basic Wages = Hours 38 × 60 40 × 50 34 × 72 = ₹ 2,448
worked × = ₹ 2,280 = ₹ 2,000
Rate p. h.
(ii) Bonus Actual. hrs Nil Nil 34
= [Link] × × 18.5 × 72
Hrs Saved × 52.5
= ₹ 863(WN 1)
Rph
(a) Total Wages = Basic + ₹ 2,280 ₹ 2,000 ₹ 3,311
Bonus

Q35. Time Rate, Piece Rate, Rowan and Halsey Systems M 86, N 05, RTP
The existing Incentive system of Alpha Limited is as under -

Normal working week 5 days of 8 hours each plus 3 late shifts of

3 hours each
 Rate of Payment Day Work: ₹ 160 per hour, Late Shift: ₹
225 per hour
Avg Output per Operator for 49- 120 articles
hours week, i.e. including 3 late
shifts
In order to increase output and eliminate overtime, it was decided to switch on
to system of payment by results, as under –
Time-Rate (as usual) : ₹ 160 per hour
Basic time allowed for 15 articles : 5 hours
Piece-work rate : Add 20% to basic Piece-Rate
Premium Bonus : Add 50% to time.
Prepare a statement showing hours worked, weekly earnings, number of articles
produced and Labour Cost per article for one Operator under the following
systems -
1. Existing Time-Rate, 2. Straight Piece-Work, 3. Rowan System, 4. Halsey
Premium System.
Assume that 135 articles are produced in a 40-hour week under Straight Piece
Work, Rowan Premium system, and Halsey Premium System above and worker
earns half the time saved under Halsey Premium System.
Solution: 1. Computation of Piece Rate
Time allowed for 15 articles = 5 hours
Time based payment for 15 articles, i.e. 5 hours = 5 hours × = Rs. 800
Rs. 160
Add: 20% of basic payment for piece-work rate = Rs. 800 × 20% = Rs. 160
Total Payment for Piece-Rate purposes = Rs. 960
Hence, Piece-Rate = Rs. 960 ÷ 15 units Rs. 64 per unit.
2. Computation of Time Saved (for Premium Bonus Schemes)
Standard time for 15 articles = 5 hours + 50% 7.5 hours
Time allowed for 135 articles (actual production) = 7.5 × 67.5 hours
135/15
Less: Time taken (actual working hours) 40.0 hours
Time Saved 27.5 hours
3. Computation of Wages earned under different systems
(a) Time Rate Hours worked × Rate p.h = (40 hours × Rs. 160) + (9 Rs.
Wages hours × Rs. 225) 8,425
(b) Piece - Work Actual Output × Rate per unit = 135 units × Rs. 64 Rs.
Wages 8,640
(c) Rowan System = (Hours worked × Rate p.h) + (Actual Hours × Time Saved
Std Hours
 × Rate p.h.)

40 Rs.
= (40 × 160) + (67.5 × 27.5 × 160) = 6,400 + 2,607
9,007
(d) Halsey System = (Hours worked × Rate p.h) + (50% × Time Saved × Rate Rs.
p.h) 8,600
= (40 × 160) + (50% × 27.5 × 160) = 6,400 + 2,200
4. Labour Cost Summary
Particulars Weekly Hours Cost per Output Cost per
Wages worked hour unit
Time Rate ₹ 8,425 40 hours ₹ 210.63 135 ₹ 62.41
units
Piece Work ₹ 8,640 40 hours ₹ 216.00 135 ₹ 64.00
units
Rowan ₹ 9,007 40 hours ₹ 225.18 135 ₹ 66.72
System units
Halsey ₹ 8,600 40 hours ₹ 215.00 135 ₹ 63.70
System units

Q36. Piece Rate, Company's Own Schemes M 99

During audit of accounts of G Company, your assistant found errors in the
calculation of the wages of factory workers and he wants you to verify his work.
He has extracted the following information.
1. The contract provides that the minimum wage for a worker is his base rate. It
is also paid for downtimes, i.e. the machine is under repair or the worker is
without work. The Standard work-week is 𝟒𝟎 hours. For Overtime Production,
workers are paid 𝟏𝟓𝟎% of base rates.
2. Straight Piecework - The worker is paid at the rate of ₹ 2 per piece.
3. Percentage Bonus Plan - Standard quantities of production per hour are
established by the Engineering Department. The workers' average hourly
production, determined from his total hours worked and his production, is
divided by the standard quantity of production to determine his Efficiency Ratio.
The Efficiency Ratio is then applied to his base rate to determine his hourly
earnings for the period.
4. Special Efficiency Plan - A minimum wages is paid for production upto 𝟔𝟔.𝟔𝟕%
of standard output or efficiency. When the workers production exceeds 𝟔𝟔.𝟔𝟕%
of the standard output, he is paid bonus as per the following table.
Efficiency Upto Above 66.67% upto 80%-99% 100%-125%
Level 66.67% 79%
Bonus NIL 10% 20% 45%
Your assistant has prepared the following schedule pertaining to certain
workers of a weekly payroll.
Worker Wage Total Down Units Standard Base Gross
Incentive Hours Time produced Units Rate Wages
Plan Hrs per
books
(₹)
Rajesh Straight 40 5 400 - 18 850
Piece Work
Mohan* Straight 46 - 455 - 18 950
Piece Work
John Straight 44 - 425 - 18 850
Piece Work
Harish Percentage 40 4 250 200 22 1,200
Bonus
Mahesh Special 40 - 240 300 21 930
Efficiency
Plan
Anil Special 40 - 600 500 20 1,260
Efficiency
Plan (40
hrs
production)
* Total hours of Mohan include 6 overtime hours.
Prepare a schedule showing whether the above computation of workers'
wages is correct or not. Give detailed workings supporting your answer.
Solution:
1. Basic Computations / Working Notes:
Worker 1. 2. Mohan 3. John
Rajesh
(a) Minimum Wages = (Normal 40 × 18 = (40 × 18) = (40 × 18)
Hrs × Normal = ₹ 720 + (6 × 27) + (4 × 27)
Rate p.h.) + (OT Hrs × OT Rate p.h.) = 720 + 162 = 720 + 108
= ₹ 882 = ₹ 828
(b) Gross Wages as per Incentive Plan 400 × 2 455 × 2 425 × 2
= Actual Output × Rate p.u. = ₹ 800 = ₹ 910 = ₹ 850

Worker 4. Harish 5. Mahesh 6. Anil

(a) Minimum 40 × 22 = ₹880 40 × 21 = ₹840 40 × 20 = ₹800

Wages = (Normal
Hrs × Normal Rate
p.h.) + (OT Hrs ×
OT Rate p.h.)

(b) Efficiency = 250 240 600

Actual production p.h × 100 × 100 = 80% × 100 = 120%
× 200 300 500
Std production p.h. = 125%
100

(c) Wages under = 40hrs × (₹22 × ₹840 + 20% Bonus ₹800 + 45% Bonus
Incentive Plan 125%) = ₹1,100 = ₹1,008 = ₹1,160

2. Statement of Wages Payable

Worker Wage Minimum Gross Wages in Payment = Highest of -
Incentive Wages Wages in books (a) Min. Wages, or (b)
Plan Incentive (ignored) Gross Wages as per
Plan Incentive Plan
Rajesh Straight ₹ 720 ₹ 800 ₹ 850 ₹ 800
Piece
Work
Mohan Straight ₹ 882 ₹ 910 ₹ 950 ₹ 910
Piece
Work
John Straight ₹ 828 ₹ 850 ₹ 850 ₹ 850
Piece
Work
Harish % Bonus ₹ 880 ₹ 1,100 ₹ 1,200 ₹ 1,100
Plan
Mahesh Spl ₹ 840 ₹ 1,008 ₹ 930 ₹ 1,008
Efficiency
Plan
Anil Spl ₹ 800 ₹ 1,160 ₹ 1,260 ₹ 1,160
Efficiency
Plan

5. Group Bonus Systems, Firm's Own System, etc.

Q37. Apportionment of Group Wages

Two Fitters, a Labourer and a boy undertake a job on piece basis for a total
wages of ₹ 12,900. The time spent by each of them was 220 ordinary working
hours. The rates of pay on time rate basis are ₹ 15 per hour for each of the two
fitters, ₹ 10 per hour for the labourer and ₹ 5 per hour for the boy. You are
required to calculate -
(a) The amount of piecework premium and the share of each worker, when the
piecework premium is divided proportionately to the wages paid.
(b) The Selling Price of the above job on the basis of the following additional
data Cost of Direct Material ₹ 20,100, Works Overhead at 20% of Prime Cost,
Selling Overhead at 10% of Works Cost, and Profit at 𝟐𝟓% on Cost of Sales.
Solution: 1. Apportionment of Piecework Premium
Particulars 2 Fitters 1 1 Boy Total
Labourer
Man hours spent 2 × 220 220 220
= 440
Rate per hour (given) (in ₹) 15 10 5
Basic Wages = Hours × Rate ₹ 6,600 ₹ 2,200 ₹ 1,100 ₹ 9,900
Bonus (balancing figure) distributed ₹ 2,000 ₹ 667 ₹ 333 ₹ 3,000
in ([Link])
Total Wages = Basic + Bonus ₹ 8,600 ₹ 2,867 ₹ 1,433 ₹ 12,900
Note: Bonus should be distributed in the equitable ratio of Basic Wages, which takes
into account, time spent as well as wage rates and skill differences.
2. Computation of Selling Price of the Job
Particulars ₹
Materials 20,100
Labour 12,900
Prime Cost 33,000
Add: Factory Overheads at 20% of Prime Cost 6,600
Works Cost 39,600
Add: Selling Overheads at 10% on Works Cost 3,960
Total Cost of Sales 43,560
Add: Profit at 25% of Total Cost 10,890
Selling Price 54,450

Q38. Allocation of Group Bonus

Three workers A, B & C are put on a common task for which the remuneration
is ₹ 15,000. A works for 40 hours, B clocks 60 hours and C spends 44 hours on
the job. The hourly rate for A is ₹ 75, B gets ₹ 80 while C is paid ₹ 50. Distribute
the earnings among the three workers and calculate earnings per hour for each
worker.
Solution:
Particulars A B C Total
1. Basic Wages 40 × ₹ 75 60 × ₹ 80 44 × ₹ 50 = ₹ ₹ 10,000
= ₹ 3,000 = ₹ 4,800 2,200
2. Bonus (₹ 5,000 apportioned ₹ 1,500 ₹ 2,400 ₹ 1,100 ₹ 5,000
in the ratio of Basic 30 : 48 : (bal. fig)
 22)

3. Total Wages (1 + 2) ₹ 4,500 ₹ 7,200 ₹ 𝟑, 𝟑𝟎𝟎 ₹ 15,000

4. Number of hours worked 40 hours 60 hours 44 hours
5. Effective Wages per hour ₹ 112.50 ₹ 120.00 ₹ 75.00
(3 ÷ 4)
Note: Group Bonus of ₹ 5,000 (i.e. Total ₹ 15,000 less Time Basis Wages ₹ 10,000)
shall be apportioned in the ratio of Time Basis Wages itself, in order to recognize both
factors viz. effort (days worked) and efficiency (wage rate per day).

Q39. Points System - Effect of Individual and Group Incentive

In a factory where all work is done on a job order basis, an incentive wage plan
is in use based on the number of points earned each week. Each job is rated as
to its difficulty and the workers earn more points per unit for difficult jobs than
for simpler work. The total number of points earned is referred to as the output
of the week.
The incentive plan is accompanied by a guaranteed minimum wage. The amount
depends on the seniority of the worker. A, B, C, D and E are employed in the
Plating Department. Their wage guaranteed and output for a full 40 - hour week
with no overtime working is as follows -
Worker A B C D E
Guaranteed Hourly minimum ₹ 35.00 ₹ 37.50 ₹ 35.00 ₹ 40.00 ₹ 35.00

Points earned 1,840 1,900 1,960 2,080 1,650

Required:
1. Compute the Gross Earnings of each worker, assuming that wages are paid
on a piecework basis at 80 paise a point, subject the guaranteed hourly
minimum. How much of the total gross earnings would be charged to job cost
sheets, and how much would be classified as overhead?
2. Compute the gross earnings of each worker assuming that a group incentive
plan is in operation. Each member of the group receives his guaranteed hourly
minimum if total production is equal to or less than 7,430 points a week.
Whenever production exceeds this minimum, the hourly rate for each worker is
increased by one half of one per cent for each 100 points in excess of 7,430.
3. Compare the earnings of each worker by methods (1) and (2) giving your
comments.
Solution:
1. Gross Earnings under Piecework with Guaranteed Hourly Wages
Worker Guaranteed Guaranteed Points Wages Gross
hourly Wage for 40 earned at 0.80 Earnings
minimum hour week per point (whichever
is high)
(1) (2) (3) = (2) × 40 (4) (5) = (4) (6) = Max. of
 × 0.80 (3) or (5)
A ₹ 35.00 ₹ 1,400 1,840 ₹ 1,472 ₹ 1,472
B ₹ 37.50 ₹ 1,500 1,900 ₹ 1,520 ₹ 1,520
C ₹ 35.00 ₹ 1,400 1,960 ₹ 1,568 ₹ 1,568
D ₹ 40.00 ₹ 1,600 2,080 ₹ 1,664 ₹ 1,664
E ₹ 35.00 ₹ 1,400 1,650 ₹ 1,320 ₹ 1,400
Total ₹ 7,300 9,430 ₹ 7,544 ₹ 7,624

Observation: From the above table it is observed that all workers except E, earn wages
under the Points basis, while E earns the guaranteed minimum of ₹ 1,400. Hence, the
extra paid to Worker E (i.e. 1,400-1,320) will be charged as overhead. Other Costs of
₹ 7,544 (₹ 7,624-₹ 80) will be treated as Direct Labour.
2. Effects of Group Incentive Plan
Actual Points = 9,430. So, Excess points = 2,000 points. So, Increase in hourly rate =
1/2 × 1 × 20 = 10%.
The wages under the Group Incentive Plan is determined as under -
Worker Increased Hourly Gross Wages Existing Difference in
Rate (+10%) for 40 hour Gross Gross Earnings
week Earnings
(1) (2) (3) = (2) × 40 (4) = (6) (5) = (3) less (4)
above
A ₹ 38.50 ₹ 1,540 ₹ 1,472 +68
B ₹ 41.25 ₹ 1,650 ₹ 1,520 +130
C ₹ 38.50 ₹ 1,540 ₹ 1,568 -28
D ₹ 44.00 ₹ 1,760 ₹ 1,664 +96
E ₹ 38.50 ₹ 1,540 ₹ 1,400 +140
Comments:
• Earnings of all workers except C is more under Group Incentive Plan.
• C has more points than A, B & E, but gets less wages. This is because he lacks
seniority which determines the Guaranteed Weekly Wage.
• E, inspite of being inefficient, stands to gain under the group incentive plan.

Q40. Production Bonus as per Company Policy RTP

Both Direct and Indirect Labours of a Department in a Factory are entitled to
Production Bonus in accordance with a group Incentive Scheme, the outline of
which is as follows -
(a) For any Production in excess of the Standard rate fixed at 16,800 tonnes per
month (of 28 days) a general incentive of ₹ 15 per tonne is paid in aggregate.
The total amount payable to each separate group is determined on the basis of
an assumed percentage of such excess production being contributed by it,
namely @ 65% by Direct Labour, @ 𝟏𝟓% by Inspection Staff, @ 12% by
Maintenance Staff and @ 8% by Supervisory Staff.
(b) Moreover, if the excess production is more than 𝟐𝟎% above the standard,
Direct Labour also gets a Special Bonus @ ₹ 5 per tonne for all production in
excess of 𝟏𝟐𝟎% of standard.
(c) Inspection Staff are penalized @ ₹ 20 per tonne for rejection by Customer in
excess of 𝟐% of production.
(d) Maintenance Staff are also penalized @ ₹ 20 per hour for breakdown.
From the following particulars for a month, compute the Production Bonus
earned by each group:
(a) Actual Working Days : 25
(b) Production : 21,000 tonnes
(c) Rejection by Customer : 500 tonnes
(d) Machine Breakdown : 40 hours
Solution: 1. Computation of Excess Production and Percentage
Particulars Computation Result
(a) Standard Production for 25 days 16,800 × 25 15,000 tons
(at 16,800 tons per month of 28 28
days)
(b) Actual Production during the month 21,000 tons
(c) Excess Production during the month 21,000 - 15,000 3,000 tons
(d) Excess Production above 20% of 6,000 - (20% of
standard 15,000) = 6,000 -
3,000
2. Statement showing Bonus earned by each Category of Staff
Category General Incentive at ₹ Spl Bonus at ₹ Penalty Net
15/ton 5/ton Payable

% Tons ₹ Tons ₹ ₹ ₹

(a) Direct 65 3,900 58,500 3,000 15,000 - 73,500

Labour

(b) Inspection 15 900 13,500 - - (WN 1) 11,900

Staff 1,600

(c) 12 720 10,800 - - (WN 2) 10,000

Maintenance 800
Staff

(d) 8 480 7,200 - - - 7,200

Supervisory
 Staff

Total 𝟏𝟎𝟎 𝟔, 𝟎𝟎𝟎 𝟗𝟎, 𝟎𝟎𝟎 𝟑, 𝟎𝟎𝟎 𝟏𝟓, 𝟎𝟎𝟎 𝟐, 𝟒𝟎𝟎 𝟏, 𝟎𝟐, 𝟔𝟎𝟎

Note:
1. Penalty for Rejection = ₹ 20 per ton × 80 tons (i.e. Actual 500 tons −2% of
Production of 21,000, i.e. 420 tons)
2. Penalty for Machine Breakdown = 40 hours at ₹ 20 per hour.

Q41. Bonus Credit - Cost of Good Production

In a factory bonus system, bonus hours are credited to the employee in the
proportion of time taken which time saved bears to time allowed. Jobs are
carried forward from one week to another. No overtime is worked and payment
is made in full for all units worked on, including those subsequently rejected.
From the following information, calculate for each employee - (a) the bonus
hours and amount of bonus earned, (b) the total wage costs, and (c) the wages
cost of each good unit produced.
Particulars Ravi Raja Rama
Basic Wage Rate per hour ₹ 25 ₹ 40 ₹ 30
Units produced for production 2,500 2,200 3,600
Time allowed per 100 units 2hrs36mins 3hrs 1hr30mins
Time taken 52hrs 75hrs 48hrs
Rejects in units 100 40 400

Solution:
Worker Ravi Raja Rama
(a) Output (units) 2,500 2,200 3,600
(b) Standard Time per 100 units 156 min 180 min 90 min
(c) Time allowed for actual output 2,500 156 2,200 180 3,600
× ×
100 60 100 60 100
90
×
60
= 65 hours = 66 hours = 54
hour:
(d) Time taken 52 hours 75 hours 48 hour:
(e) Time Saved [(c) less (d)] 13 hours NA 6 hour:
(f) Bonus Hrs = Time Saved ÷ Std Hrs 10.4 hours NA 5.33
× Time taken (e ÷ c) × (d) hours
(g) Wage Rate per hour ₹ 25 ₹ 40 ₹ 30
(h) Therefore Bonus Earned = (f) × (g) ₹ 260 NIL ₹ 160
(i) Basic Wages (d) × (g) ₹ 1,300 ₹ 3,000 ₹ 1,440
(j) Therefore Total Wages = (h) + (i) ₹ 1,560 ₹ 𝟑, 𝟎𝟎𝟎 ₹ 1,600
(k) Number of rejects 100 40 400
(l) Therefore No. of good units (a) - (k) 2,400 2,160 3,200
(m) Cost per good unit (j) ÷ (1) ₹ 0.65 ₹ 1.39 ₹ 0.50

Q42. Group Incentive based on Productivity RTP

25 men work in a group. If the weekly production of the group exceeds 200
pieces per hour (which is the standard), each man gets a bonus in addition to
his Time Wages.
Each man's Bonus Share should be one-half of the percentage in excess of
standard production. Each man is paid this percentage of a wage rate of ₹ 60p.h.
There is no relationship between the individual workman's hourly rate and the
bonus rate.
The records for one week show the following -
Day Monday Tuesday Wednesday Thursday Friday Saturday
Hours 190 210 195 215 200 190
worked
Production 44,200 47,300 45,200 47,600 46,900 44,800
units

Compute - (1) Rate and amount of Bonus for the week, (2) Total Wages of
Workers X and Y given the data -
• X worked 45 hours during the week and was paid ₹ 50 per hour basic.
• 𝐘 worked 48 hours during the week and was paid ₹ 55 per hour basic.
Solution:
1. Computation of Bonus Percentage and Bonus per hour
(a) Actual Output for the week (44,200 + 47,300 + 45,200 + 2,76,000 units
47,600 + 46,900 + 44,800)
(b) Standard Output (190 + 210 + 195 + 215 + 200 + 190) 2,40,000 units
hours × 200 units per hour
(c) Excess Production (a − b) 36,000 units
(d) Percentage of Excess Production to Standard (c ÷ b) 15%
(e) Bonus Percentage = 1/2 of the above 1/2 of 15% = 7.5%
(f) Bonus per hour = 7.5% of a Standard Wage Rate of ₹ ₹ 4.50 per hour
60 per hour
(g) Total Bonus for the week = 1,200 hours × ₹ 4.50 per ₹ 5,400
hour
 2. Computation of Earnings of Workers X and Y
Particulars X Y
(a) Basic Wages 45 hours × ₹ 50 p.h. = 48 hours × ₹ 55 p.h. =
₹ 2,250.00 ₹ 2,640.00
(b) Bonus at ₹ 4.50 per 45 hours × ₹ 4.50 p.h. = 48 hours × ₹ 4.50 p.h. =
hour ₹ 202.50 ₹ 216.00

Total Wages ₹ 2,452.50 ₹ 2,856.00

Q43. Incentive based on Cost Reduction RTP

Calculate the earnings of two workers A and B for every 200 units of output from
the following information -
• Standard Conversion Costs of the product: ₹ 60 per unit.
• Overheads - 150% of Wages Cost, Wage Rate: Worker A - ₹ 10 per hour, Worker
B - ₹ 12 per hour.
• Time taken to complete 200 units by Worker A is 400 hours and by Worker B
is 380 hours.
• There is an incentive system based on the reduction of Labour and Overhead
Cost in the following scale -
Reduction upto 15% 20% 25%
Earns a bonus 10% of wages 20% of wages 25% of wages
Solution:
Worker A B
(a) Production 200 units
(b) Time taken 400 hours 380 hours
(c) Wage Rate per hour ₹ 10 ₹ 12
(d) Wages Cost (before Bonus) = (b) × (c) ₹ 4,000 ₹ 4,560
(e) Overhead Cost at 150% of Labour = (d) × 150% ₹ 6,000 ₹ 6,840
(f) Total Conversion Cost = Wages +OH = (d) + (e) ₹ 10,000 ₹ 11,400
(g) Standard Conversion Cost at ₹ 60 per hour ₹ 12,000 ₹ 12,000
(h) Reduction in Conversion Cost = (g) − (f) ₹ 2,000 ₹ 600
(i) % of Reduction to Standard Cost = (h) ÷ (g) 16.67% 5%
(j) Therefore Eligible Bonus % 20% 10%
(k) Bonus Amount (Wages × Bonus %) = (d) × (j) ₹ 800 ₹ 456
(l) So, Earnings = Wages + Bonus = (j) + (k) ₹ 4,800 ₹ 5,016

Q44. Slab-Rate Bonus M 90

The standard hours of job X are 100 hours. The job can be completed by A in 60
hours, B in 70 hours or C in 95 hours. The bonus system applicable to the job is
as follows -
Percentage of time saved to time allowed Bonus
Saving upto 10% 10% of time saved

From 11% to 20% 15% of time saved

From 21% to 40% 20% of time saved

From 41% to 100% 25% of time saved

Rate of pay is ₹ 𝟓𝟎 per hour. Calculate the total earnings of each worker and
also the rate of earnings per hour.
Solution:
Worker A B C
Time Allowed 100 hours 100 hours 100 hours
Less: Time Taken 60 hours 70 hours 95 hours
Time Saved 40 hours 30 hours 5 hours
% of time saved to standard 40% 30% 5%
Savings falls in the range of: 21%-40% 21% - 40% Upto 10%
Applicable Bonus rate on Time Saved 20% 20% 10%
Hence, Bonus Hours = Rate × Time 8 hours 6 hours 0.5 hours
Saved
Add: Basic Hours 60 hours 70 hours 95 hours
Total Hours = Bonus + Basic Hours 68 hours 76 hours 95.5 hours
Total Wages at Rs. 50 per hour Rs. 3,400 Rs. 3,800 Rs. 4,775
Rate of earnings per hour = Wages ÷ Rs. 56.70 Rs. 54.30 Rs. 50.30
Actual Hours

6. Treatment of Idle Time Cost & Overtime Premium

Q45. Treatment of Idle-time Cost M 01

The normal working hours in a Factory are 8 hours per day. An idle-time of 1
hour is considered normal due to rest, lunch, etc. Compute the cost of idle time
and its treatment in the following circumstances.
1. Ram, a Production Worker worked for 7 hours and was paid ₹ 120 for the full
day.
2. Raju, an Indirect Worker, was paid ₹ 50 as his daily wage.
3. Dev, a Production Worker clocked 6 hours but was paid his full day's wages
₹ 120. Due to breakdown of machinery, he could not work for 1 hour during the
day.
Solution: 1. Computation of Wage Rate per hour
Daily Wages 120
(a) Payment Rate per hour = = = ₹15.00 per hour.
Total Hours per day 8
Daily Wages 120
(b) Costing Rate per hour = = = ₹17.14 per hour.
Effective Hours per day 7

Note: Effective Working Hours per day = 8 hours less 1 hour (Normal Idle Time) = 7
hours.
2. Treatment of Wages Cost and Normal Idle Time
(a) Wages paid to Ram
Alternative 1: Treated as Direct Wages Alternative 2: Treated as 𝐏𝐎𝐇

Total Daily Wages = ₹ 15 × 8 hours = Total Daily Wages = ₹ 15 × 8 hours = ₹

₹ 120 120

↓ ↓ ↓ ↓
Productive Time = 7 Idle Time Productive Time = 7 Idle Time (Normal)
hours (given) Cost (Normal) 1 hour hours (given) Cost 1 hour (given) Cost
= 7 hours × ₹ 17.14 (given) Cost is = 7 hours × ₹ 15.00 = 1 hour × ₹ 15.00
= ₹ 120.00) absorbed as = ₹ 105.00) = ₹ 15.00
Wages, by
Treated as Direct Treated as Direct Treated as POH
inflating the
Labour Cost Labour Cost
wage rate.

(b) Wages paid to Raju: Since Raju is not directly engaged in production, Cost of
Indirect Labour is treated as Production OH. It is not generally classified into Normal
Idle Time and Abnormal Idle Time, since these performance standards cannot be laid
down for Indirect Workers.
(c) Wages paid to Dev:
Alternative 1: Treated as Direct Wages Alternative 2: Treated as POH
Total Daily Wages = Rs. 15 × 8 hours = Total Daily Wages = Rs. 15 × 8 hours =
Rs. 120 Rs. 120
↓ ↓ ↓ ↓
Productive Time Idle Time 2 hours Productive Time Idle Time 2 hours,(b/f)
(b/f)
= 6 hours (given) ↓ ↓ = 6 hours (given) ↓ ↓
Cost = 6 hours × Normal Abnormal Cost = 6 hours × Normal Abnormal 1
Rs. 17.14 = Rs. Rs. 15 = Rs.90 1 hr × Rs. hr × Rs. 15
NII 1 hr×Rs.
102.84 Treated as Treated as Direct Taken to
17.14 Taken 15
Direct Labour Cost Labour Cost
to P&L A/c Treated P&L A/c
as POH
Note: Cost of Abnormal Idle Time is charged to Costing P & L Account.
Q46. Treatment of OT Premium in different situations RTP
In a Factory, the Basic Wage Rate is ₹ 10 per hour and Overtime Rates are as
follows:
Before and after Normal Working Hours 175% of Basic Wage
Rate
Sundays and Holidays
225% of Basic Wage
Rate
During the Previous year, the following hours were
worked
Normal Time 1,00,000 hours
Overtime before and after working hours 20,000 hours
Overtime on Sundays and Holidays 5,000 hours
Total 1,25,000 hours
The following hours have been worked on Job 'Z'
Normal 1,000 hours
Overtime before and after working hours 1,00 hours
Sundays and Holidays 25 hours
Total 1,125 hours
You are required to calculate the Labour Cost chargeable to job ‘Z’ and overhead
in each of the following instances -
(a) Where Overtime is worked regularly throughout the year as a policy due to
Labour shortage.
(b) Where Overtime is worked irregularly to meet the requirements of
production.
(c) Where Overtime is worked at the request of the Customer to expedite the
job.
Solution:
1. Computation of Effective Wage Rate per hour
Particulars Normal OT before and OT on Sundays Total
after Working & Holidays
Wage Rate per Given ₹ 175% of Basic = 225% of Basic =
hour 10 ₹ 17.50 ₹ 22.50
Hours worked 1,00,000 20,000 5,000 1,25,000
last year
Labour Cost ₹ ₹ 3,50,000 ₹ 1,12,500 ₹
last year 10,00,000 14,62,500
₹ 14,62,500
Therefore Effective Average Wage Rate per hour = = ₹ 11.70 per hour.
1,25,000 hours

2. Computation of Actual Direct Labour Cost incurred on Job Z

 Particulars Hours Cost (₹)
Normal at ₹ 10 per hour 1,000 10,000.00
Overtime before and after Working hours at ₹ 17.50 per hour 100 1,750.00
Sundays and Holidays at ₹ 22.50 per hour 25 562.50
Total 1,125 12,312.50

3. Treatment of Total Direct Labour and Overtime Cost under alternative

situations
Particulars Regular Irregular At Customer's
Overtime work Overtime work specific request

Treatment Effective Rate is Normal Wages is Total Cost

charged to job, charged to job including OT
and balance if while OT Premium Premium is fully
any, adjusted as is charged / charged to Job as
Production OH adjusted to OH Direct Labour
Cost

Total Labour Cost as ₹ 12,312.50 ₹ 12,312.50 ₹ 12,312.50

per WN 2

Charged to Job as 1,125 × 11.70 1,125 × 10 ₹ 12,312.50

Direct Labour = ₹ 13,162.50 = ₹ 11,250.00

Balance adjusted / (Credit) ₹ 850.00 (Debit) ₹ 1,062.50 Nil

transferred to (Adjustment (OT Premium
Production OH Entry) taken as POH)

Q47. Overtime as per Factories Act - Computation of Wages Payable

It is seen from the Job Card for repair of the Customer's Equipment that a total
of 154 Labour Hours have been, put in as detailed below -
Particulars Worker 'A' Paid Worker 'B' Paid Supervisory Worker 'C' paid
at ₹ 200 per day at ₹ 100 per day of ₹ 8 hours
of 8 hours of 8 hours
Monday 10.5 hours 8 hours 10.5 hours
Tuesday 8 hours 8 hours 8 hours
Wednesday 10.5 hours 8 hours 10.5 hours
Thursday 9.5 hours 8 hours 9.5 hours
Friday 10.5 hours 8 hours 10.5 hours
Saturday - 8 hours 8 hours
Total 49 hours 48 hours 57 hours
In terms of an award in a Labour Conciliation, the Workers are to be paid
Dearness Allowance on the basis of Cost of Living Index figures relating to each
month which works out at ₹ 𝟗, 𝟔𝟎𝟎 for the relevant month. The Dearness
Allowance is payable to all workers irrespective of wage rate if they are present
or are on leave with wages on all working days.
Sunday is a weekly holiday and each worker has to work for 8 hours on all week
days and 4 hours on Saturdays, the workers are however paid full wages for
Saturday (8 hours for 4 hours worked).
Workers are paid overtime according to the Factories Act for hours worked in
excess of normal working hours on each day. Excluding holidays (including 4
hours work to be put in on Saturday) the total number of hours work out to 192
in the relevant month. The Company's Contribution to Provident Fund and
Employee's State Insurance Premium are absorbed into Overheads.
Ascertain the Wages Payable to each Worker.
Solution:
1. Computation of Hours to be paid for Worker A
Particulars Normal Extra OT Equivalent Total Normal
Hrs Hrs Hours Normal OT Hours
Monday 8 1 1 3 12
1
2
Tuesday 8 - - - 8
Wednesday 8 1 1 3 12
1
2
Thursday 8 1 1 1 10
2
Friday 8 1 1 3 12
1
2
Saturday - - - -
Total 40 4 5 10 54
Note: Normal Hours is as per Co. Policy. Extra Hours Column is shown to determine
OT cut-off as per Factories Act, i.e. 9 hrs per day. For every hour beyond 9 hours per
day, i.e. OT, twice the normal rate is paid, so [Link] OT hour is computed.
2. Computation of Hours to be paid for Worker B
Particulars Normal Extra OT Equivalent Total Normal
Hrs Hrs Hours Normal OT Hours
Monday 𝟖 - - - 𝟖
Tuesday 8 - - - 8
Wednesday 𝟖 - - - 8
Thursday 8 - - - 8
Friday 8 - - - 8
 Saturday 4 4 - - -
Total 44 4 - - 48

Note: No OT eligibility for Worker B on Saturday, since his working time does not go
beyond 48 hours a week.
3. Computation of Hours to be paid for Worker C
Particulars Normal Extra OT Equivalent Total Normal
Hrs Hrs Hours Normal OT Hours
Monday 8 1 1 ⋅3 12
1
2
Tuesday 8 - - - 8
Wednesday 8 1 1 3 12
1
2
Thursday 8 1 1 1 10
2
Friday 8 1 1 3 12
1
2
Saturday 4 - 4 (Note) 8 12
Total 44 4 9 18 66
Note: OT on Saturday is eligible, since Worker C time exceeds 48 hours a week.
Alternative assumptions are possible.
4. Computation of Wages Payable
Particulars A B C
Rate per Day ₹ 25.00 ₹ 12.50 ₹ 37.50
(a) Basic Wages per hour = 8 Hours
9,600
(b) Dearness allowance per hour = ₹ 50.00 ₹ 50.00 ₹ 50.00
192 hours

(c) Hourly Rate ₹ 75.00 ₹ 62.50 ₹ 87.50

(d) Normal Hours (This equals Normal + Extra 44 48 48
Hours of WN 1,2,3)
(e) Overtime Hours (This is OT Hours as per 𝟓 - 9
WN 1,2,3)
(f) Normal Wages: (d × c) ₹ 3,300.00 ₹ 3,000.00 ₹ 4,200.00
(g) Overtime Wages: (e × 2 times (twice the ₹ 750.00 - ₹ 1,575.00
Normal) × c)
Total Wages Payable ₹ 4,050.00 ₹ 3,000.00 ₹
𝟓, 𝟕𝟕𝟓. 𝟎𝟎

Q48. Wage Cost Allocation - Idle Time and Overtime

In a Factory working six days in a week and eight hours each day, a Worker is
paid at the rate of ₹ 100 per day basic plus D.A. @ 𝟏𝟐𝟎% of basic. He is allowed
to take 30 minutes off during his hours shift for meals-break and a 10 minutes
recess for rest.
During a week, his card showed that his time was chargeable to:
Job X - 15 hrs. Job Y - 12 hrs. Job Z - 13 hrs.
The time not booked was wasted while waiting for a job. In Cost Accounting,
how would you allocate the wages of the workers for the week?
Solution:
1. Basic Computations
(a) Total Wages per week = (₹ 100 + 120% of ₹ 100) × 6 days = ₹ 1,320
(b) Effective Hours per week = [(8hrs − (30 minutes +10 minutes)] × 6 days = 44
hours
₹ 1,320
(c) So, Effective Wage rate per hour = = ₹ 30
44 hours

(d) Time wasted in waiting for job (= Abnormal Idle Time) = 44 hrs −(15 hrs +12 hrs
+13 hrs) = 4 hrs
2. Allocation of Wages in Cost Accounting Rs.
Allocated to Job X = 15 hours × ₹ 30 450
Allocated to Job Y = 12 hours × ₹ 30 360
Allocated to Job Z = 13 hours × ₹ 30 390
Charged to Costing Profit & Loss A/c = 4 hours × ₹ 30 120
Total 1,320

7. Labour Cost and Job Costing

Q49. Labour Cost per Employee, per Hour N 18 (New)

Following data have been extracted from the books of M/s. ABC Private
Limited:
(a) Salary (each Employee, per month) ₹ 30,000
(b) Bonus 25% of Salary
(c) Employer's Contribution to PF, ESI etc. 15% of Salary
(d) Total Cost of Employee' Welfare Activities ₹ 6,61,500 per
annum
(e) Total Leave permitted during the year 30 days
(f) No. of Employees 175
(g) Normal Idle Time 70 hours per
annum
(h) Abnormal Idle Time (due to failure of Power Supply) 50 hours
310 days of 8 hours
(i) Working days per annum
Calculate - (a) Annual Cost of each Employee, (b) Employee Cost per Hour, (c)
Cost of Abnormal Idle Time per Employee.
Solution:
Particulars Computation ₹
Basic Salary ₹ 30,000 × 12 months 3,60,000
Bonus ₹ 3,60,000 × 25% 90,000
Employer's Contribution to ₹ 3,60,000 × 15% 54,000
PF, ESI, etc.
Employee' Welfare Activities ₹ 6,61,500 ÷ 175 Employees 3,780
per Employee
Annual Cost of each Total of above ₹ 5,07,780
Employee
Effective Hours p.a. (310 − 30) days × 8 hours less 2,170 hrs
Normal Idle Time 70 hrs p.a
Employee Cost per Hour ₹ 5,07,780 ÷ 2,170 hours ₹ 234 p.h
Cost of Abnormal Idle Time ₹ 234ph × 50 hours ₹ 11,700
per Employee

Q50. Labour Cost and Job Costing M 10

Following are the particulars for April, relating to four employees working in a
Factory exclusively for Job No.201.
Employee Designation Wages
Employee I Foreman ₹ 400 per month
Employee II Mechanic ₹ 150 per day day
Employee III Machine Operator ₹ 120 per day
Employee IV Workman
The normal working hours per week of six days are 48 at 8 hours per day.
Sundays are paid holidays and there was no other holiday during the month.
Provident Fund Contribution was 12% of monthly wages by both Employer and
Employee. Employees' State Insurance Contribution was 1.75% of Monthly
Wages by Employee and 4.75% of Monthly Wages by Employer.
From the foregoing data, calculate -
1. Net Wages Payable by the Employer for the month.
2. Total Amount of Provident Fund Contribution to be deposited by Employer.
3. Total Amount of ESI Contribution to be deposited by Employer.
4. Total Labour Cost to the Employer for the month of April, 2010 chargeable to
Job No.201.
5. Total Cost of Job no.201 requiring Material valued at ₹ 40,500 and Overheads
at 50% of Prime Cost.
Solution:
1. Statement of Labour Cost and related Computations
Particulars Employee Employee Employee Employee Total
I II III IV
(a) Gross Wages for 30 days ₹ 6,400 ₹ 180 × 30 ₹ 150 × 30 ₹ 120 × 30 ₹ 19,900
period = ₹ 5,400 = ₹ 4,500 = ₹ 3,600
(See Note below)
(b) PF Contribution by ₹ 768 ₹ 648 ₹ 540 ₹ 432 ₹ 2,388
Employer at 12%
(c) ESI Contribution by ₹ 304 ₹ 257 ₹ 214 ₹ 171 ₹ 946
Employer 4.75%
(d) Gross Wages = (a + b + ₹ 7,472 ₹ 6,305 ₹ 5,254 ₹ 4,203 ₹ 23,234
c)
= Total Labour Cost of Job
201, for April
(e) PF Contribution by ₹ 768 ₹ 648 ₹ 540 ₹ 432 ₹ 2,388
Employee at 12%
(f) ESI Contribution by ₹ 112 ₹ 95 ₹ 79 ₹ 63 ₹ 349
Employee 1.75%
(g) Net Wages Payable (a - e ₹ 5,520 ₹ 4,657 ₹ 3,881 ₹ 3,105 . ₹ 17,163
- f)
(h) Total PF Contribution to ₹ 1,536 ₹ 1,296 ₹ 1,080 ₹ 864 ₹ 4,776
be deposited by Employer (b
+ e)
(i) Total ESI Contribution to ₹ 416 ₹ 352 ₹ 293 ₹ 234 ₹ 1,295
be deposited by Employer (c
+ f)
Note: Wages are calculated for April month 30 days period. Alternatively, it can also
be calculated for 28 days, i.e. 4 weeks × 6 days + 4 Sundays Paid Holidays.
2. Total Cost of Job No. 201
Particulars Computation ₹
Direct Materials Given 40,500
Direct Labour As per Item 1(d) above 23,234
Prime Cost 63,734
Add: Overheads 50% on Prime Cost = 50% of ₹ 63,734 31,867
Total Cost 95,601

Q51. Allocation of Cost over Jobs M 92

Calculate the earnings of Workers A and B from the following data of a month,
& allocate the earnings to each job X, Y, and Z.
Particulars Worker A Worker B
Basic Wages ₹ 10,000 ₹ 10,000
Dearness Allowance 50% 55%
Provident Fund (on Basic Wages) 12% 12%
Employee's State Insurance (on Basic Wages) 10% 10%
Overtime 10 hours -
Idle Time and Leave - 16 hours
The normal working hours for the month is 200 hours. Overtime is paid at double
the Normal Wages plus Dearness Allowance. Employer's Contributions to State
Insurance and Provident Fund are at equal rate with Employees' Contributions.
The month contains 25 working days and one paid holiday. The two workers
were employed on jobs 𝐗, 𝐘 and Z in the following proportions -
Job X Y Z
Worker A 40 30 30
Worker B 50 20 30
Overtime was done on job Y.
Solution:
1. Computation of Gross Earnings and Net Earnings of Workers
Worker A B
Basic Wages 10,000 10,000
Dearness Allowance 5,000 5,500
Employer Contribution to Provident Fund 1,200 1,200
Employer Contribution to E S I 1,000 1,000
Total 17,200 17,700
Add: Overtime = (10,000 + 5,000) × 10 hours OT × 200% 1,500 —
200 hours

Gross Earnings 18,700 17,700

Less: Deductions: [Link] Contribution (Employer + 1,200 × 2= 1,200 × 2=
Employee) each equal 2,400 2,400
E S I Contribution (Employer + Employee) each 1,000 × 2= 1,000 × 2=
equal 2,000 2,000
Net Earnings 14,300 13,300
Note: ESI & PF on Overtime are ignored in the above calculations.
2. Allocation of Earnings
• Worker A's earnings: Since OT was spent on Job Y, it will be charged to that Job in
full. Hence, the balance earnings of ₹ 17,200 will be distributed to the Jobs in the ratio
[Link] (as given).
 Worker B's earnings: Since there is abnormal idle time of 16 hours, Cost of
Abnormal Idle Time shall be determined as ₹ 17,700×16 hours / 200 hours = ₹ 1,416.
Hence, the balance wages of ₹ 17,700-₹ 1,416 = ₹ 16,284 shall be distributed to the
Jobs in the ratio of 50: 20:30 (as given)
Job X Y Z Idle Total
Time
A: OT Wages (actuals) - 1,500 - - 1,500
Normal Time Wages (in 40: 30: 6,880 5,160 5,160 - 17,200
30)
Total 6,880 6,660 5,160 - 18,700

B: Abnormal Idle Time - - - 1,416 1,416

Normal Time Wages (in 50: 20: 8,142 3,257 4,885 - 16,284
30)

Total 8,142 3,257 4,885 1,416 17,700

Q52. Allocation of Cost over Jobs N 20 (New)

Following are the particulars of two workers R and S for a month.
Particulars Worker Worker
R S
Basic Wages ₹ 15,000 ₹ 30,000
Dearness Allowance 50% 50%
Contribution to Employees Provident Fund (on Basic 7% 7.5%
Wages)
Contribution to Employees State Insurance (on Basic 2% 2%
Wages)
Overtime 20 hours -
The normal working hours for the month is 𝟐𝟎𝟎 hours. Overtime is paid at double
the Normal Wages plus Dearness Allowance. Employer's Contributions to State
Insurance and Provident Fund are at equal rate with Employees' Contributions.
The two workers were employed on jobs A, B and C in the following proportions
-
Job A B C
Worker R 75% 10% 15%
Worker S 40% 20% 40%
Overtime was done on job A. You are required to -
[Link] Ordinary Wage Rate per hour of R and S. [Link] the Workers'
Cost to each Job A, B and C.
Solution:
1. Computation of Earnings of Workers and Rate per hour
 Worker R S
Basic Wages 15,000 30,000
Dearness Allowance at 50% 7,500 15,000
Employer Contribution to Provident Fund 1,050 2,250
Employer Contribution to E S I 300 600
Total Ordinary Earnings 23,850 47,850
Add: Overtime = (15,000 + 7,500) × 20 hours OT × 200% 4,500 —
200 hours

Total Earnings including OT 28,350 47,850

Ordinary Earnings per Hour = Total Ordinary 119.25 239.25
Earnings ÷ 200 hours

Note: ESI & PF on Overtime are ignored in the above calculations.

2. Allocation of Earnings
Note: For Worker R, since OT was spent on Job A, it will be charged to that Job in full.
Hence, the balance Ordinary Earnings of ₹ 23,850 will be distributed to the Jobs in the
given ratio.
Job A B C Total
R: OT Wages (actuals) 4,500.00 — — 4,500
Ordinary Wages (in 75: 10: 17,887.50 2,385.00 3,577.50 23,850
15)
Total 22,387.50 2,385.00 3,577.50 28,350
S: Ordinary Wages (in 40: 20: 19,140.00 9,570.00 19,140.00 47,850
40)
Grand Total 41,527.50 11,955.00 22,717.50 76,200

Q53. Employee Cost, Effective Wage Rate, etc. RTP

Garuda Ltd pays the following to a skilled worker engaged in production works.
The following are the Employee Benefits paid to the employee:
(a) Basic Salary per day ₹ 1,000
(b) Dearness Allowance (DA) 20% of Basic Salary
(c) House Rent Allowance 16% of Basic Salary
(d) Transport Allowance ₹ 50 per day of actual work
(e) Overtime Twice the hourly rate (considers Basic
and DA), only if works more than 9
hours a day otherwise no Overtime
 Allowance. If works for more than 9
hours a day then Overtime is
considered after 8^ th hour.
(f) Work of Holiday and Sunday Double of per day Basic Rate provided
works atleast 4 hours. The Holiday and
Sunday basic is eligible for all
Allowances and Statutory Deductions.
(g) Earned Leave & Casual Leave These are Paid Leave.
(h) Employer's Contribution to 12% of Basic and DA
Provident Fund
(i) Employer's Contribution to 7% of Basic and DA
Pension Fund
The Company normally works 8-hour a day & 26-days in a month. The Company
provides 30 minutes lunch break in between.
During August, Worker J works for 23 days including 15th August and a Sunday,
and applied for 3 days of Casual Leave. On 𝟏𝟓th August and Sunday, he worked
for 5 and 6 hours respectively without lunch break. On 𝟓th and 𝟏𝟑th August, he
worked for 10 and 9 hours respectively.
During the month 𝐉 worked for 100 hours on Job No.HT200. From the above, you
are required to calculate - (1) Earnings per day, (2) Effective Wage Rate per hour
of J, (3) Wages to be charged to Job No.HT200.
Solution:
[Link] per Day (₹)
Basic Salary (₹ 1,000 × 26 days) 26,000
Dearness Allowance (20% of Basic Salary) 5,200
Sub Total Basic + DA (for PF and Pension Fund Purposes) 31,200
House Rent Allowance (16% of Basic Salary) 4,160
Employer's Contribution to Provident Fund (12% of ₹ 31,200) 3,744
Employer's Contribution to Pension Fund (7% of ₹ 31,200) 2,184

Total per month 41,288

Rate per day = Total ₹ 41,288 divided by 26 days 1,588

Earnings per day = Rate per Day ₹ 1,588 as above + Transport 1,638
Allowance per Day ₹ 50

Note: Normal Working Hours pm = (Daily Working Hours 8- Lunch Break 0.5) × 26
Normal Days = 195 hours.
[Link] Wage Rate per Hour of J (₹)
 Basic Salary (₹1,000 × 26 days) + Additional Basic for Sunday & 28,000
Holiday (₹1,000 × 2 days)
Dearness Allowance (20% of Basic Salary) = 20% of 28,000 5,600
Sub Total Basic + DA (for PF and Pension Fund Purposes) 33,600
House Rent Allowance (16% of Basic Salary) = 16% of 28,000 4,480
Transport Allowance (₹ 50 × 25 days) [See (a) and (b) below for 1,250
Total Working Days and Hours]
Overtime Allowance (₹ 320 × 2 hours) [See (c) below for OT Rate 640
and Hours]
Employer's Contribution to Provident Fund (12% of ₹ 33,600) 4,032
Employer's Contribution to Pension Fund (7% of ₹ 33,600) 2,352
Total Monthly Wages of J 46,354
₹ 46,354 248.55
Effective Wage Rate per Hour of J = 186.5 hrs

Notes:
(a) Days worked by J = Total 26 Working Days -3 days Casual Leave = 23 days +15th
Aug and a Sunday. Also, on 5th and 13th Aug, time worked is different. Hence,
Balance Normal Working Days of 8 − 0.5 = 7.5 hours per day = 23 − 2 = 21.
(b) Hours worked = (21 Normal Days × 7.5hrs) + (5th Aug 9.5 hrs +13th Aug 8.5
hrs) + (15th Aug 5 hrs + Sunday 6 hrs) = 𝟏𝟖𝟔. 𝟓𝟎 hours.
1,000+200
(c) OT Rate = twice the daily Basic +DA = 200% of (8−0.5)hrs = ₹ 320 per hour. This
is applicable only for 5th Aug for 10 − 8 = 2 hours. [OT is not eligible for 13th Aug
since time worked does not exceed 9 hours.]
3. Wages to be charged to Job No. HT200 = ₹ 248.55 × 100 hours = ₹ 𝟐𝟒, 𝟖𝟓𝟓

8. Miscellaneous

Q54. Effect of Labour Strike on Profits

YEZDEE Ltd manufactures and markets luxury cars in a competitive market. The
Company suffered a strike by production labour that lasted for two weeks.
During that period, no cars were produced. YEZDEE issued a statement to the
press that the cost of the strike was ₹ 50 Crores. This was estimated on the basis
of lost production of 1,000 vehicles of an average price of ₹ 5 lakhs each.
YEZDEE 's accountant feels that this figures, released in a hurry, overstates the
cost of the strike and produces the following statement to support his views -
Cost of Strike ₹ Benefits of Strike ₹
Lakhs Lakhs
Loss of Revenue 5,000 Expenses avoided
(1,000 Cars × ₹ 5 Materials (₹ 1 lakh per car) 1,000
Lakhs)
 Production Labour (₹ 0.5 lakh per 500
car)
Depreciation of Machinery 1,750
Overhead (200% of Production 1,000
Labour)
Net Cost of Strike (balancing 750
figure)
Total 5,000 Total 5,000
The following additional information is available -
• Depreciation of machines is based on the Straight-Line method of calculation.
However, the plant manager estimates that the machines will fall in value by ₹
200 lakhs per week regardless of the level of production. He feels that in addition
its value will fall by ₹ 150 lakhs for every 100 cars that are produced.
• Overheads are recorded at 𝟐𝟎𝟎% on Production Labour. This includes Fixed
and Variable items of Overheads. The General Manager estimates that Variable
𝐎𝐇 will be ₹ 10 Lakhs for every 100 cars produced.
• During the period of the strike, the maintenance staff, whose wages are
included in the fixed overhead expenses, carried out a major overhaul on some
of the machines using material costing ₹ 10 lakhs. An outside contractor would
perform this overhaul at a price (including materials) of ₹ 100 lakhs.
• The Sales Manager feels that about 𝟒𝟎% of the production lost could be made
up and sold in the next month by the production labour working overtime.
Labour is paid at the rate of time and half for overtime working.
You are requested to advise a major shareholder who doubts the validity of both
the press statement and the accountant's statement as to the true cost of the
strike.
Solution: Since 40% of production lost could be made up and sold in the next month,
the net effect of strike is only on the permanent loss of market share i.e. balance 60%.
The Cost-Benefit Analysis is as under -
Cost of Strike ₹ Lakhs Benefits of Strike ₹ Lakhs
Loss of Revenue 3,000 Expenses avoided / Savings
obtained:
(600 Cars × ₹ 5 Lakhs) Materials (₹ 1 lakh × 600 Cars) 600
Overtime Premium for Labour (₹ 0.5 lakh × 600 Cars) 300
40% balance production Depreciation (150/100 × 600 900
Cars)
(400 Cars × 0.5 Lakh × 100 Variable OH(10/100 × 600 Cars) 60
50%)
Maintenance Expenses (100-10) 90
Net Cost of Strike (balancing 1,150
figure)
 Total 3,100 Total 3,100

Q55. Additional Output due to Mechanisation - Incentive to workers - Effect on

Profit N 00
The present output details of a manufacturing department are as follows -
Average Output per week 48,000 units
from 160 employees.
Saleable Value of Output ₹ 6,00,000
Contribution made towards Fixed ₹ 2,40,000
Expenses and Profit
The Company plans to introduce more mechanisation into the Department at a
Capital Cost of ₹ 1,60,000. The effect of this will be to reduce the number of
employees to 120, and increasing the output per individual employee by 60%.
To provide the necessary incentive to achieve the increased output, it intends
to offer a 1% increase on the piecework rate of ₹ 1 per unit for every 2% increase
in average individual output achieved.
To sell the increased output, it will be necessary to decrease the Selling Price
by 4%. Calculate the extra weekly contribution resulting from the mechanisation
proposal and evaluate the desirability of introducing it.
Solution: Note: Since average individual output has increased by 60%, Bonus
Entitlement will be 30%.
Particulars Before Mechanisation After Mechanisation
1. No. of 160 120
Employees
2. Output per 48,000 units ÷ 160 employees≡ 300 units÷ 60% = 480 units
employee 300 units
3. Total Output (Given) = 48,000 units 120 × 480 units = 57,600 units
Per Unit Total Per Unit Total
4. Selling Price ₹ 6,00,000 ÷ (Given) ₹ ₹ 12.50-4% = ₹ 57,600×12=
48,000 = ₹ 6,00,000 12.00
12.50 ₹ 6,91,200
<
5. Variable Costs:
(a) Labour (given) ₹ 1.00 ₹ 1+30%=₹ 1.30
(b) Others (bal. (bal. fig) ₹ 6.50 (same as previous)
fig) ₹ 6.50
₹ 2,40,000 ÷ 57,600 ×
48,000 = 4.2=
6. Contribution (4 ₹ 5.00 (Given) ₹ ₹ 4.20 ₹ 2,41,920
- 5) 2,40,000
7. Decision:
(a) Extra Weekly Contribution = ₹ 2,41,920 - ₹ 2,40,000 = ₹ 1,920
(b) Payback Period (i.e. time required for recovery of Capital Investment) = Given ₹
1,60,000 ÷ ₹ 1,920 = 84 weeks.
(c) So, the project is acceptable only if the product demand exists for atleast 84 weeks.

Q56. Time and Motion Study

The New Operations Company wishes to determine the standard time for doing
its specialised job through the technique of Time and Motion Study. The
following data has been compiled after a series of studies by experts on the
following lines.
1. The movements of workers during the course of their job performance was
analysed.
2. A number of unnecessary movements were eliminated. By providing standard
tools and equipments, improvised movements were introduced.
3. Workers were trained on the new methods of work.
4. After careful analysis, the time taken by two workers Arun and Bala were
considered as representative estimates in order to determine the Standard Time
required for the job.
5. The performance of two workers Arun and Bala of an operation on three
counts are given below -
Arun Time taken Rating Bala Time taken Rating
I count 22 min 70/60 I count 25 min 50/60
II count 20 min 70/60 II count 26 min 50/60
III count 21 min 70/60 III count 24 min 50/60
From the above, calculate the standard time for the job, after considering an
allowance of 𝟐𝟎% for normal rest, and a further 𝟏𝟓% as incentive allowance.
Solution:
Worker Count Time taken Rating Normalised time
Arun I 22 min 70/60 25.67 min
II 20 min 70/60 23.33 min
III 21 min 70/60 24.50 min
Bala I 25 min 50/60 20.83 min
II 26 min 50/60 21.67 min
III 24 min 50/60 20.00 min
Total 138 min 136.00 min
Normalised Time = Time taken × (Actual Rating ÷ Base or Normal Rating) =
22 × (70/60) = 25.67 min.
Average Normalised Time = 136 ÷ 6 counts = 22.67 Note: Incentive Allowance is
min added by inflating the
Standard Time, in order to
Add: Allowance for rest, etc. at 20% = 4.53 min
attract efficient workers into
Adjusted Normal Time = 27.20 min the organization. Efficient
Add: Incentive Allowance at 15% of the above = workers will be able to
4.08 min complete the job earlier and
earn incentive on the time
Standard Time for the Job = 31.28 min saved.