Shivi is working by employing 10 skilled workers. It is considering the introduction of some incentive scheme – either Halsey scheme (with 50%…
CA Intermediate · Cost and Management Accounting · MTP · January 2025
Shivi is working by employing 10 skilled workers. It is considering the introduction of some incentive scheme – either Halsey scheme (with 50% bonus) or Rowan scheme of wage payment for increasing the labour productivity to cope with the increased demand for the product by 25%. She feels that, if the proposed incentive scheme could bring about an average 20% increase over the present earnings of the workers, it would act as sufficient incentive for them to produce more and she has accordingly given this assurance to the workers. As a result of this assurance, the increase in productivity has been observed as revealed by the following figures for the current month: Hourly rate of wages (guaranteed) ₹ 2.00Average time for producing 1 piece by one worker at the previous performance (this may be taken as time allowed) 2 hoursNumber of working days in the month 25Number of working hours per day for each worker 8Actual production during the month 1,250 units Required: (1) CALCULATE effective rate of earnings per hour under Halsey scheme and Rowan scheme. (2) CALCULATE the savings of Navya in terms of direct labour cost per piece under the above schemes. (3) ADVISE Navya about the selection of the scheme to fulfill her assurance
Suggested Answer and Working Notes:
Production during the month 1,250 units Time allowed for 1,250 units @ 2 hours per unit (1,250 x 2 hours) 2,500 hours Actual time taken 25 days x 8 hours x 10 workers 2,000 hours Time saved 500 hours Labour cost per piece under time rate scheme: 2 hours x 2 = 4 Calculation of effective hourly rate under: Halsey Scheme: (₹) Basic wages of 10 workers: 2,000 hours @2 per hour 4,000 Bonus 50% x (500 hours x 2) 500 Total wages for 2,000 hours 4,500 Effective hourly rate of earning = 4,500 / 2,000 hours = 2.25 Labour cost per piece = 4,500 / 1,250 units = 3.60 Saving in terms of direct labour cost per piece (₹ 4.00 - 3.60) = 0.40 Rowan Scheme: (₹) Basic wages (as calculated under Halsey scheme) 4,000 Bonus: (500 hours / 2,500 hours) x 2,000 hours x 2 800 Total wages for 2,000 hours 4,800 Effective hourly rate of earnings = 4,800 / 2,000 hours = 2.40 Labour cost per piece = 4,800 / 1,250 units = 3.84 Saving in terms of direct labour cost per piece (₹ 4.00 - 3.84) = 0.16 Advise: Shivi should introduce Halsey incentive scheme, as it gives more saving than the Rowan incentive scheme.
Topics: Employee Cost & Direct Expenses
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