ZED Limited is working by employing 50 skilled workers, it is considering the introduction of incentive scheme-either Halsey scheme (with 50% bonus)…

CA Intermediate · Cost and Management Accounting · MTP · May 2026
ZED Limited is working by employing 50 skilled workers, it is considering the introduction of incentive scheme-either Halsey scheme (with 50% bonus) or Rowan scheme 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 assurance, the increase in productivity has been observed as revealed by the figures for the month of April, 2025. Hourly rate of wages (guaranteed) ₹ 30 Average time for producing one unit by one worker at the previous performance (This may be taken as time allowed) 1.975 hours Number of working days in the month 24 Number of working hours per day of each worker 8 Actual production during the month 6,120 units Required: (i) CALCULATE the effective rate of earnings under the Halsey scheme and the Rowan scheme. (ii) CALCULATE the savings to the ZED Limited in terms of direct labour cost per piece. (iii) ADVISE ZED Limited about the selection of the scheme to fulfill their assurance.

Suggested Answer and Working Notes:

Working notes: 1. Computation of time saved (in hours) per month: (Standard production time for 6,120 units) – (Actual time taken by the workers) = (6,120 units × 1.975 hours) – (24 days × 8 hours per day × 50 skilled workers) = (12,087 hours – 9,600 hours) = 2,487 hours 2. Computation of bonus for time saved under Halsey and Rowan schemes: Time saved = 2,487 hours (Refer to working note 1) Wage rate per hour = 30 Bonus under Halsey Scheme = 1/2 × 2,487 hours × 30 (With 50% bonus) = 37,305 Bonus under Rowan Scheme = (Time saved ÷ Time allowed) × Time taken × Rate per hour = (2,487 hours ÷ 12,087 hours) × 9,600 hours × 30 = 59,258.38 (i) Computation of effective rate of earnings under the Halsey and Rowan scheme: Total earnings (under Halsey scheme) (Refer to working note 2) = Time wages + Bonus = (24 days × 8 hours × 50 skilled workers × ₹ 30) +37,305 = 2,88,000 +37,305 = 3,25,305 Total earnings (under Rowan scheme) (Refer to working note 2) = Time wages + Bonus = 2,88,000 + 59,258.38 = 3,47,258.38 Effective rate of earnings per hour (under Halsey Plan) = 3,25,305 ÷ 9,600 hours = 33.89 Effective rate of earnings per hour (under Rowan Plan) = 3,47,258.38 ÷ 9,600 hours = 36.17 (ii) Savings to the ZED Ltd., in terms of direct labour cost per piece: Direct labour cost (per unit) under time wages system - 59.25 (1.975 hours per unit × ₹ 30) Direct labour cost (per unit) under Halsey Plan (₹ 3,25,305 ÷ 6,120 units) ₹ 53.15 Direct labour cost (per unit) under Rowan Plan (₹ 3,47,258.38 ÷ 6,120 units) ₹ 56.74 Saving of direct labour cost under: Halsey Plan (₹ 59.25 - 53.15) ₹ 6.10 Rowan Plan (₹ 59.25 - 56.74) ₹ 2.51 (iii) Advise to ZED Ltd.: (about the selection of the scheme to fulfill assurance) Halsey scheme brings more savings to the management of ZED Ltd., over the present earnings of 2,88,000 but the other scheme i.e. Rowan scheme fulfils the promise of 20% increase over the present earnings of 2,88,000 by paying 20.58% in the form of bonus. Hence Rowan Plan may be adopted.

Topics: Employee Cost & Direct Expenses

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