Page 157 - DCOM202_COST_ACCOUNTING_I

Unit 7: Remuneration and Incentives

(b) Prepare a statement showing the annual cost of production before and after the Notes
implementation of the suggestion to use the Jig and indicate the annual saving.
(c) State the assumptions on which your calculations are based.
Solution:
(a) Computation of amount of Award payable to the employee who has given the suggestion:
Standard time: 2 hours or 120 minutes
Efficiency: 60%
Direct labor hours required: 120 x 100/60 = 200 minutes
For 30, 000 components time required = 30, 000 x 200/60 = 1, 00, 000 hours Labor cost ` 5
per hour = ` 5, 00, 000
Standard time after suggestion = 120 minutes –12 minutes = 108 minutes Direct labor hour
required = 108 x 100/60 = 180 minutes

Clock hours required for 30, 000 parts = 30, 000 x 180/60 = 90, 000 hours Time saved in a
year = 1, 00, 000 – 90, 000 = 10, 000 hours
Cost of saving in time in a year = 10, 000 hours x ` 5 = ` 50, 000
Award equivalent to 3 months wage cost saving = ` 50, 000 x 3/12 = ` 12, 500

(b) Annual Cost of Production and Savings to the Company
Particulars Before After Suggestion
Suggestion 90, 000 hours
1, 00, 000 hours
Raw materials: 30000 parts x 10 kg x ` 2 6,00,000 6,00,000
Direct wages: @ ` 5 per hour 5,00,000 4,50,000
Overheads @ ` 10 per hour 10,00,000 9,00,000
Material handling @ 2% of cost of raw material 12,000 12,000
Cost of Jig 3,000
Total cost 21,12,000 19,65,000

Gross Saving in cost = ` 1, 47, 000 Less: Award amount = ` 12, 500 Net savings in cost =
` 1, 34, 500
(c) Assumptions: There will be no change in efficiency. The labor hours saved and surplus
capacity formed due to improvement are used profitably for other jobs.

Self Assessment

State whether the following statements are true or false:
1. Remuneration to workers is the most complex problem in a democratic country like
India.
2. The term ‘real wages’ refers to the purchasing power of money wages.

3. Fair wages is that wages which the labour gets for his work.
4. Either direct or indirect labour employed in a factory or industry will have to be paid
remuneration for the services.

5. Workers can calculate their wages easily.

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