Page 155 - DCOM202_COST_ACCOUNTING_I

Unit 7: Remuneration and Incentives

Notes
Year Sales Revenue ` Total Salaries and Wages `
2003-04 2,40,000 72,000
2004-05 2,50,000 70,000
2005-06 2,70,000 86,400
For the year 2006-07, the sales revenue has been ` 3,25,000 and the total salaries and wages paid
` 90,000. What is the amount due to employees under Scanlon Plan? If 50% is set-aside in the
bonus equalization reserve fund, how much money is to be paid out for 2006-07 as Scanlon
Bonus?
Solution:

z z Average annual salaries and wages = [` 72,000 + ` 70,000 + ` 86,400]/3
z z Average salaries and wages = ` 76,133
z z Average annual sales revenue
[` 2,40,000 + ` 2,50,000 + ` 2,70,000]/3 = ` 2,53,333
z z Bonus percentage = ` 76,133 / ` 2,53,333 = 30.05%
z z Salaries and wages on which bonus is applicable = ` 97,663 *[` 3,25,000 × 30.05%]

z z Actual salaries and wages for 2006-07 = ` 90,000
z z Bonus fund = ` 97,663 – ` 90,000 = ` 7,663
z z Transfer to Bonus equalization reserve fund = ` 3,831
z z Bonus available for disbursement = ` 3,832
Illustration: Your organization is experiencing a high labor turnover in recent years, and
management would like you to submit a report on the loss suffered by the company due to such
labor turnover. Following figures are available for your consideration.
Sales: ` 600 lakhs
Direct materials: ` 150 lakhs

Direct labor: ` 48 lakhs on 4,80,000 man hours
Other variable expenses: ` 60 lakhs
Fixed overheads: ` 80 lakhs
The direct man hours include 9000 man hours spent on trainees and replacements, only 50% of
which were productive. Further, during the year 12,000 man-hours of potential work could not be
availed of because of delayed replacement. The cost incurred due to separation and replacements
amounted to ` 1 lakh.
On the basis of the above data, prepare a comparative statement showing actual profit vis-à-vis
the profit which would have been realized had there been no labor turnover.
Solution:
I. Calculation of direct labor cost if there was no labor turnover:
Actual direct labor cost per hour = ` 48,00,000/4,80,000 = ` 10 per direct labor hour
Cost of man hours of potential work lost due to delayed replacement = 12,000 × ` 10 =
` 1, 20,000 Direct labor cost if there was no labor turnover = ` 48,00,000 + ` 1,20,000 = `
49,20,000.

LOVELY PROFESSIONAL UNIVERSITY 149