Rivaan Industries manufactures and sells wooden study tables. The demand for these tables has been steadily increasing due to the company's strong…

CA Intermediate · Cost and Management Accounting · RTP · May 2026
Rivaan Industries manufactures and sells wooden study tables. The demand for these tables has been steadily increasing due to the company's strong distribution network and reputation for durable products. Despite the rising market potential, the company continues to rely on its long-established wage practices. At present, Rivaan Industries pays wages under a piece-rate system, with a standard piece rate of 18 per table produced. The company policy for payment under the piece-rate system is as follows: For efficiency less than 100%: Workers are paid 80% of the standard piece rateFor efficiency equal to or more than 100%: Workers are paid 125% of the standard piece rate The standard output per hour is 3 tables. Each worker works 9 hours per day from Monday to Friday and 4 hours on Saturday. A total of 132 workers are currently eligible for this wage plan. However, the cutting and finishing machines used in production were purchased many years ago and now limit workers' efficiency. As a result, workers have demanded a shift to a time-rate wage system at 65 per hour, along with incentives under the Halsey Premium Plan (50% sharing of time saved). To evaluate the financial impact, the management has prepared the following estimated production levels for January 2026 under three different scenarios: Production Estimates (January 2026) Scenario Worst Case Optimal Case Best Case Production (units) 36,900 73,800 1,10,700 In addition, the company is assessing a potential Technology Upgrade Case involving partial automation, which may influence both output levels and worker productivity. Required: (a) Compute the Total wages, and Average wages per worker per month, for all four scenarios (Worst, Optimal, Best, and Technology Upgrade Case) under each of the following wage systems: (i) Current piece-rate wage system (based on differential piece rates) (ii) Workers' proposed system: Time-rate wages @65 per hour + Halsey Premium (50%) (b) Mr. R, one of the workers, produced 900 tables in December 2025. If he produces the same number of tables in January 2026, compute: His earnings under the current piece-rate systemHis earnings under the proposed time-rate + Halsey incentive systemThe difference in his earnings Based on your computation, should Mr. R support the workers' demand? (Assume 4 working weeks in a month.)

Suggested Answer and Working Notes:

(a) Calculation of Total wages and average wages per worker per month. (i) When Current system of wages and incentive payment system is followed: Standard Production per Month Standard production per worker = 196 hours × 3 units = 588 units Standard production for 132 workers = 588 × 132 = 77,616 units Particulars Worst Case Optimal Case Best Case I. Standard Production (units) (588 units × 132 workers) 77,616 77,616 77,616 II. Actual Production (units) 36,900 73,800 1,10,700 III. Efficiency (%) (II ÷ I × 100) 47.54% 95.08% 142.63% IV. Applicable Piece Rate 14.40 (18 x 0.8) 14.40 (18 x 0.8) 22.50 (18 x 1.25) V. Total Wages (II × IV) 5,31,360 10,62,720 24,90,750 VI. Average Wage per Worker (V ÷ 132) 4,025.45 8,050.91 18,869.32 (ii) When workers' demand for time rate wages and Halsey premium plan is accepted: Particulars Worst Case Optimal Case Best Case I. Actual Production (units) 36,900 73,800 1,10,700 II. Standard Units per hour 3 3 3 III. Standard Hours Required (I ÷ II) 12,300 24,600 36,900 IV. Expected working hours (132 workers × 196 hrs.) 25,872 25,872 25,872 V. Time Saved (IV – III) 11,028 VI. Time Wages (IV × ₹ 65) 16,81,680 16,81,680 16,81,680 VII. Halsey Bonus (50% × Time Saved × 65) 3,58,410 VIII. Total Wages (VI + VII) 16,81,680 16,81,680 20,40,090 IX. Average Wage per Worker (VIII ÷ 132) 12,740 12,740 15,455.23 (b) Calculation of gain or loss in the current monthly income of Mr. R: 1. Under Current Piece-Rate System Standard production = 588 units Production in December = 900 units Efficiency = 900 ÷ 588 × 100 = 153.06% Rate = 22.50 Total wages = 900 × 22.50 = 20,250 2. Under Proposed Time Rate + Halsey Plan Standard hours = 900 units ÷ 3 units = 300 hours Actual hours available = 196 hours Time saved = 300 – 196 = 104 hrs, Time wages = 196 × ₹ 65 = 12,740 Halsey Bonus (50% × Time Saved × 65) = 104 hrs x 50% x 65 = 3,380 Total expected wages = 16,120 3. Loss To Mr. R Loss = 20,250 – 16,120 = 4,130 Supporting the demand of colleague workers will cost - 4,130 in the next month to Mr. R.

Topics: Employee Cost & Direct Expenses

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