The assembly department of a manufacturing company employs 50 direct workers. Each worker earns a wage of 500 per week for a standard 40-hour…
CA Intermediate · Cost and Management Accounting · MTP · September 2025
The assembly department of a manufacturing company employs 50 direct workers. Each worker earns a wage of 500 per week for a standard 40-hour workweek. When required, the workers may perform overtime up to 10 hours per week per worker, with overtime paid at time rate plus 50% premium. Currently, the workers produce 5 units per hour on average, which is considered the standard output rate. The company is planning to introduce an incentive scheme expecting this rate to increase to 7 units per hour. Under the new scheme, workers will still be permitted to work overtime if needed, but no incentive will be paid on overtime hours. The management is evaluating the introduction of either the Halsey Plan or the Rowan Plan to improve productivity. The company has a target weekly output of 17,500 units. The selling price per unit is 15, while the direct material cost is 10 per unit. The variable overheads are - 0.60 per direct labour hour, and fixed overheads are - 12,000 per week. PREPARE a comparative statement showing the effect on the company's weekly profit under the following alternatives: (a) Continuing with the existing wage system (no incentive) (b) Introducing the Halsey Plan (c) Introducing the Rowan Plan
Suggested Answer and Working Notes:
Working Notes: 1. Total available hours per week (normal) = 50 workers x 40 hours = 2,000 hours 2. Total standard hours required to produce 17,500 units at 5 units/hr = 17,500/5 = 3,500 hours 3. Total hours needed after bonus scheme at 7 units/hr = 17,500 ÷ 7 = 2,500 hours 4. Time saved = 3,500 – 2,500 = 1,000 hours 5. Wage rate per hour = 500 ÷ 40 = 12.50/hour 6. Overtime limit = 10 hours/worker/week → max overtime = 50 x 10 = 500 hours 7. Bonus: (i) Halsey Scheme = 1 x Time saved x Wage rate per hour 2 = 1 x 1,000 x 12.50 = 6,250 2 (ii) Rowan Scheme = Time saved x Time taken x Wage rate per hour Time allowed = 1,000 hours x 2,500 hours x 12.50 = 8,929 3,500 hours 8. Overtime premium (only in present system): Overtime hours = 3,500 – 2,000 = 1,500 hrs Limited to 500 hrs (as only 10 hrs per worker allowed), rest must be absorbed or not worked Overtime premium = 500 hrs x 6.25 (half rate) = 3,125 Statement Showing the Weekly Profit Under Present, Halsey, and Rowan Schemes Particulars Present (₹) Halsey (₹) Rowan (₹) Sales Revenue (17,500 x 15) 2,62,500 2,62,500 2,62,500 Less: Costs Direct Material (17,500 x 10) 1,75,000 1,75,000 1,75,000 Direct Wages 43,750 31,250 31,250 (3,500 x 12.50) (2,500 x 12.50) (2,500 x 12.50) Overtime Premium (500 x 6.25) 3,125 Bonus 6,250 8,929 Variable Overheads 2,100 1,500 1,500 (3,500 x 0.60) (2,500 x 0.60) (2,500 x 0.60) Fixed Overheads 12,000 12,000 12,000 Total Cost (B) 2,35,975 2,26,000 2,28,679 Profit (A - B) 26,525 36,500 33,821
Topics: Employee Cost & Direct Expenses
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