Page 152 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes II. Wages under Merrick’s Differential Piece Rate System
Worker A:

Efficiency level: Standard production = 8 hours x 60 units = 480 units
Actual production = 390 units
Efficiency level = 390 units/480 units x 100 = 81.25 %
A will get wages as per the normal piece rate as his efficiency level is 81.25% which is below
83%, hence his wages will be 390 units x ` 0.090 = ` 35.10
Worker B:
Efficiency level: Standard production = 8 hours × 60 units = 480 units
Actual production = 450 units
Efficiency level = 450/480 x 100 = 93.75%

B will get wages @ 110% of normal piece rate, i.e.` 0.099 per unit His wages = ` 0.09 x 450
units = ` 44.50
Worker C:

Efficiency level = 600 /480 x 100 = 125%
B will get wages @ 120% of normal piece rate i.e. ` 0.108 per unit His wages = ` 0.108 x 600
units = ` 64.80
Illustration: A company has its factories at two locations. Rowan plan is in use at location A
and Halsey plan at location B. Standard time and basic rate of wages are same for a job which is
similar and is carried out on similar machinery. Time allotted is 60 hours.

Job at location A is completed in 36 hours while at B, it has taken 48 hours. Conversion costs at
respective places are ` 1224 and ` 1500. Overheads account for ` 20 per hour.
Required:

I. To find out the normal wage rate and,
II. To compare the respective conversion cost.
Solution: Let ` Y per hour be normal wage rate
So, wages at location A will be ` 36Y and at location B, ` 48Y
Time allowed is 60 hours

Hence, for time saved, bonus will be payable as under,
Location A
Bonus under Rowan Plan = Time saved/ Time allowed x Hours worked x Rate = 24/60 x 36 x Y
= ` 14.4 Y

Total wages = ` 36Y + ` 14.4Y = ` 50.4Y
Overheads @ ` 20 per hour worked ` 720
Hence, total conversion cost is ` 50.4Y + 720 = ` 1224 [given in the example]
So, Y = ` 10

Location B
Bonus under Halsey plan = 50% of time saved x Rate per hour = 50% of 12 x Y = ` 6Y

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