Page 142 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes (v) As compared to the time rate method, under this method the supervision costs are not
high, because the workers are to be paid on the basis of performance.

Disadvantages of Piece Rate Method
The following are the disadvantages of piece rate method:

(i) If there is no good and ready market for production, the problem of over production may
arise.
(ii) The worker may be tempted to have quantity even at the cost of his health.

(iii) The workers always attempt to maximize their output and in doing so they use the machines
and tools recklessly and thus, the breakage cost may increase.
(iv) Determination of the piece rate is a difficult task and generally disputes take place between
employer and employees due to it.
(v) As more output means more wages, the workers are always in a hurry to produce more.
They are encouraged to have quantity at the costs of quality; bad quality means wastage of
material and other resources on the same products.
(vi) The method will frustrate the less efficient workers. The efficiency may further decrease
because of discontent.

7.2.3 Incentive Plans/Schemes

Time rate method and piece rate method are discussed with advantages and disadvantages in
this unit. The basic purpose of incentive plans to introduce for workers to produce more to earn
higher wages. The various incentive plans are available for wage payment to workers. Following
are main incentive plans and discussed are as follows:
Combination of Time and Piece Rates: Under this scheme the following methods are important
for wage payment:
(a) Emerson Efficiency Bonus Scheme: This scheme is designed to give encouragement to the
slow works to perform batter than before. Under this system, time wage is guaranteed. The
main features of plan are:
™ z Day wages are guaranteed,

™ z A standard time is fixed for each production or output,
™ z Below 66 2/3 per cent efficiency, the worker is paid his hourly rate and from 66 2/3
per cent upto 100 per cent efficiency, payments are made on the basis of step bonus
rates, and
™ z Above 100 per cent efficiency, an additional bonus of 1 per cent of the hourly rate is
paid for each 1 per cent increase in efficiency.
The formula for calculating earnings under this scheme is:

Earnings = AT × R + (Percentage of Bonus × AT × R)

Example: Standard time 8 hours, standard output 8 units, rate per hour ` 3, units
produced 5, 6, 7, 8 and 10. The table of premium is as under:

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