Page 73 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Under Differential Piece Rate scheme, earnings vary at different stages in the range of
output, sometimes proportionally more, sometimes less, or sometimes in proportion to
output, designed to reward efficient workers with the further objective of encouraging less

efficient workers or a trainee to improve.

The object of a premium plan is to increase the production by providing an inducement to
the workers in the form of higher wages for less time worked.

4.5 Keywords

Abnormal Idle Time: It is that time wastage which can be avoided if proper precautions are
taken.
Differential Piece Rate: Under this scheme earnings vary at different stages in the range of
output, sometimes proportionally more, sometimes less, or sometimes in proportion to output,

designed to reward efficient workers with the further object of encouraging less effi cient workers
or a trainee to improve.
Idle time: Idle time is that time for which the employer pays, but from which he obtains no
production.

Labour Turnover: It denotes the percentage change in the labour force of an organisation.
Normal Idle Time: This represents the time wastage that cannot be avoided and, therefore, the
employer must bear the labour cost of this time.

4.6 Review Questions

1. Cost of labour turnover is treated as an overhead expense and should not be charged direct
to any work order. Why?
2. Do you think that there is a direct relationship of the labour to a particular production unit
or process?
3. Idle time is that time for which the employer pays, but from which he obtains no production.
Discuss.
4. During one week, workman B produced 200 units. He receives wages for a guaranteed
4 hours week at the rate of ` 1.50 per hour. The estimated time to produce one article is
1/4 hours and under incentive scheme the time allowed is increased by 20 percent. Calculate
the gross wages under each of the following methods of remuneration:
(a) Time rate
(b) Piece work with a guaranteed weekly wage

(c) Halsey plan
(d) Rowan plan.
5. An employee working under a bonus scheme saves 4 hours in a job for which the standard
time is 32 hours. Calculate the rate per hour worked and wages payable for time taken
under the following alternative scheme (award rate is ` 1 per hour).
(a) Employee receives an increase in the hourly rate based on percentage that the time
saved bears to the time set.

(b) A bonus of 10 percent on award rate is payable when standard time (namely, 100%

efficiency) is achieved plus a further bonus of 1% on award rate for each 1% in excess
of 100 percent effi ciency.

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