Page 145 - DCOM202_COST_ACCOUNTING_I

Unit 7: Remuneration and Incentives

Merrick Plan: Notes

z z Worker X = High task is 100 units, actual output is 96, this means that the efficiency level is
96%. As per Merrick Plan, wages of X will be 110% of normal piece rate which is ` 6.60 per
unit = ` 6.60 × 96 = ` 633.6

z z Worker Y = High task is 100 units, actual output is 111 units, efficiency level is 111%. Y will
be entitled for wages @ 120% of normal piece rate i.e. @ ` 7.20 per unit. His wages will be,
` 7.20 X 111 = ` 799.2

z z Worker Z = High task is 100 units, actual output is 126 units, efficiency level is 126%. Z will
get at higher piece rate @ ` 7.20 per unit. His wages will be ` 7.20 × 126 units = ` 907.2
Gantt Task and Bonus Plan:

z z Worker X = ` 10 × 40 hours = ` 400 [X will get guaranteed time rate as his output is below
the high task]

z z Worker Y = ` 6 × 111 units = ` 666 [High piece rate as output is above standard]
z z Worker Z = ` 6 × ` 126 = ` 756 [High piece rate as output is above standard]
Illustrtation:
Calculate total earnings from the following data:
Time taken 8 hours
Time allowed 10 hours
Rate per hour ` 2

Solution:
Bonus ratio is
Total earnings by method (i)
= 8 hrs. × ` 2 + ` 16 × 1/5

= ` 16 + 3.20
= ` 19.20
Total earnings from method (ii)
= 8 hrs. × (` 2 + 2 × 1/5)
= 8 hrs. × ` 2.40

= ` 19.20
Advantages of Rowan Premium Scheme: Advantages of this method are as follows:
(i) It is suitable for learners and beginners,
(ii) The workers share the benefit with the employer, and
(iii) This scheme provides a safeguard against loose fixation of standard.

Disadvantages of Rowan Premium Scheme: The main disadvantages are:
(i) It is more complicated than the Halsey premium scheme,
(ii) The employers share the bonus earned by workers, and
(iii) Incentive is not as attractive as it is with his piece work rate.

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