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…
CA Intermediate · Cost and Management Accounting · RTP · September 2026
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 Average output per operator for 49-hours week i.e. including 3 late shifts 240 articles In order to increase output and eliminate overtime, it is decided to switch on to a system of payment by results. The following information is obtained: Time-rate (as usual) : ₹160 per hour Basic time allowed for 15 articles : 2.5 hours Piece-work rate : Add: 20% to basic piece-rate Premium Bonus : Add: 50% to time. If during the last week 270 articles are produced in a 40-hour week. Required: (i) CALCULATE weekly earnings, number of articles produced and labour cost per article for one operator under the following systems: (a) Existing time-rate (b) Straight piece-work (c) Rowan system (d) Halsey premium system (ii) PREPARE a Statement showing hours worked, weekly earnings, number of articles produced and labour cost per article for one operator under the above systems.
Suggested Answer and Working Notes:
(i) (a) Existing time rate Weekly wages: Normal shift (40 hours × ₹160): ₹6,400 Late shift (9 hours × ₹225): ₹2,025 Total: ₹8,425 (b) Piece Rate System 15 articles are produced in 2.5 hours Therefore, to produce 270 articles, hours required is (2.5 hours / 15 articles) x 270 articles = 45 hours. Cost of producing 270 articles: At basic time rate (45 hours × ₹160) = ₹7,200 Add: Bonus @ 20% on basic Piece rate ₹1,440 Earning for the week = ₹8,640 (c) Rowan Premium System Time allowed for producing 270 articles (2.5 hours / 15 articles) × 270 articles = 67.5 hours Time taken to produce 270 articles = 40.0 hours Time Saved = 67.5 – 40 = 27.5 hours Earnings under Rowan Premium system: = (Time taken × Rate per hour) + (Time saved / Time allowed) × Time taken × Rate per hour = (40 hours × ₹160) + (27.5 hours / 67.5 hours) × 40 hours × ₹160 = ₹9,007.41 (d) Halsey Premium System = (Time taken × Rate per hour) + (1/2 × Time saved × Rate per hour) = (40 hours × ₹160) + (1/2 × 27.5 hours × ₹160) = ₹6,400 + ₹2,200 = ₹8,600 (ii) Statement showing hours worked, weekly earnings, number of articles produced and cost per article Method of Payment Hours worked Weekly earnings (₹) Number of articles produced Labour cost per article (₹) Existing time rate 49 8,425.00 240 35.10 Straight piece rate system 40 8,640.00 270 32.00 Rowan Premium System 40 9,007.41 270 33.36 Halsey Premium System 40 8,600.00 270 31.85
Topics: Employee Cost & Direct Expenses
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