Acma- 7-8
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Labour Cost - Control
Labour Cost Indirect
Direct Cost of all labour expended in altering the construction, composition or condition of the product Directly Allocable
Varies directly with volume of output
Cost related to labour who are not so directly engaged in altering the construction, composition or condition of the product
Indirect
Direct It is variable so it can be easily controlled
-Production Planning -Use of Labour Budget -Use of Labour Standard -Effectiveness of wage incentive schemes -Labour performance report -Labour Cost Accounting
Apportionment of OH Not Variable
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Labour Cost Control – Different Functional Activities
Labour Turnover :
Personnel Dept. Time Keeping Dept. Payroll Dept.
It is not variable so it requires attention by Establishment of Suitable Budget Dept. wise and comparison of actual with standard.
Loss of employment in an organisation
High Cost Low Productivity
Causes of Labour Turnover : Avoidable Causes
Unavoidable Causes
-Redundancy
Personal Betterment
Dissatisfaction with job, remuneration, hours of work, working conditions,
Illness or Accident
Engg. & Work Study Dept. Cost Acctg. Dept.
Relationship with seniors and subordinates
Move from locality Retirement or death
Personnel Policies Dr. Ratnesh Chaturvedi, COMA, Session – 7-8 Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
1
Measurement of Labour Turnover : Separation Method :
No. of Separations in a period x 100 / Avg. no. of workers in the period
Replacement Method :
No. of Replacements in a period x 100 / Avg. no. of workers in the period
Flux Method :
½ (No. of Separations + No. of Replacements) x 100 / Avg. no. of workers
Illustration - Measurement of Labour Turnover : During Apr’05 the following information is obtained from the Personnel Dept. of a manufacturing concern : Labour force at beginning of the month 950 and 1050 at the end of the month. During the month 10 persons quit while 30 persons are discharged. 140 workers were engaged – out of which only 20 persons appointed in the vacancy created by the number of workers separated and the rest on account of an expansion scheme. Calculate the labour turnover rate.
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Separation Method :
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
No. of Separations in a period x 100 / Avg. no. of workers in the period = 40 x 100 / (950+1050)/2 = 4%
Cost of Labour Turnover :
Inefficiency of new labour
Preventive Cost
EALT Rate = 4 x 365 / 30 = 49.67% Replacement Method :
No. of Replacements in a period x 100 / Avg. no. of workers in the period = 20 x 100 / (950+1050)/2 = 2% EALT Rate = 2 x 365 / 30 = 24.33%
Flux Method :
½ (No. of Separations + No. of Replacements) x 100 / Avg. no. of workers = ½ ( 40+20) x 100 / (950+1050)/2 = 3% EALT Rate = 3 x 365 / 30 = 36.5%
Replacement Costs
Cost of personnel admn. Cost of medical services
Cost of selection and placement Training Costs Loss of output Increased spoilage
Cost of welfare services
Accident frequency
Pension schemes
Cost of tools & machine breakages
Should be apportioned to different departments in proportion to the number of persons engaged in each dept. Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
If due to fault of a particular dept. charge against that dept. Otherwise apportioned to different departments in proportion to the number of persons engaged in each dept.
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
2
LABOUR PRODUCTIVITY
Remuneration & Incentives When output is uniform :
Productivity is the index of efficiency showing the effectiveness of the individual or combined factors used in producing goods or services. Generally it is the ratio between output and input.
LP = Output / Actual Hrs.
When output consists of different types of products consuming different amount of time : LP = Prdn. In Standard Hrs. / Actual Hrs. Worked
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Remuneration is total monetary earnings of employees. It consists of earnings according to time or on piece rate and includes other financial incentives.
In Fixing Remuneration following considerations are important : -The wages paid to employees of same type of organisation -The ability of the employers to pay -The needs of employee – Standard of living Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Principles Applicable to all Incentive Schemes
Remuneration & Incentives
Remuneration Systems
Why Incentive Scheme ?????? -To increase the volume of production Time Rates
Piece Rates
Bonus Systems
Indirect monetary incentives
Nonmonetary incentives
-At Ordinary Levels
-Straight Piece Rates
-Profit Sharing
-At High wage levels
-Piece-rates with guaranteed day rates
-Individual bonus for direct workers
Welfare – Health, Sports, etc.
-To improve or at least maintain, the quality of product -To reduce the cost of production, and -To raise morale and increase efficiency of staff Factors in An Incentive Scheme : 1. Productivity OH Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
2.Effect on Workers
3. Incidence of fixed
-Graduated Time Rates
-Differential piece rates
-Group bonus for direct workers
-Copartnership
-To indirect workers
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
3
Time Rates
-At Ordinary Levels
Earnings = Hrs. Worked x Rate /Hr.
-At High wage levels
More than above i.e. with incentive
-Graduated Time Rates
Adjusted time rate w.r.t. cost of living index
-Straight Piece Rates
Earnings = No. of units x Rate/unit
Differential Piece Rates
1. Taylor
2. Merrick
3. Gantt task & Bonus
1. Taylor Differential Piece Rate System – Not Popular & modified by Gantt & Merrick
Two Piece Rates : High Piece Rate – for output above standard (150% of low rate) Low Piece Rate – for output below standard
Piece Rates
-Piece-rates with guaranteed day rates
Or, Std. Hrs. of work produced x Rate per std. Hr.
Three Rates : Earnings = Guaranteed time rate plus a piece rate payment for output above a stated minimum
-Differential piece rates Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Differential Piece Rates
2. Merrick Differential Piece Rate System – Modification of Taylor System
Output percentage Standard Up to 83%
Ordinary Piece Rate
b)
83% to 100%
110% of Ordinary PR
c)
Over 100%
120% of Ordinary PR
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
1. Taylor
2. Merrick
1. Taylor
2. Merrick
3. Gantt task & Bonus
Illustration: The following is the output of workers A, B and C in a particular 40 hour week : A – 64 units, B – 74 units and C – 84 units
Three Rates : Output
Differential Piece Rates
3. Gantt task & Bonus
3. Gantt task & Bonus Plan : Combined time, bonus & piece rate
Payment
a)
Output below standard (High Task)
Time Rate (Guaranteed)
b)
Output at standard
Bonus @ 20% of the Time Rate
c)
Output over standard
High Piece Rate on worker’s whole output
Guaranteed time-rate Rs. 5 / hour Low Piece Rate – Rs. 2 per unit, High Piece Rate – Rs. 3 / unit, High task 80 units / week
Table Showing Earnings and Labour Cost Per Unit Merrick System Gantt Task System Worker Output / % of Task Taylor System Week (80Units) Earnings Cost/unit Earnings Cost/unit Earnings Cost/unit A B C
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Payment
a)
64 74 84
80 92.5 105
128 148 252
2 2 3
128 162.8 201.6
2 2.2 2.4
200 200 252
3.125 2.70 3
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
4
Bonus Systems
Individual bonus System
ILLUSTRATION :
Premium Bonus System is an incentive system in which the gain resulting from the increased output is shared between the employer and employees in agreed proportions. The premium bonus to be paid is calculated on the hours saved I.e. on the difference between the time allowed and the time taken. 1. Halsey Premium Plan
During one week the workman X manufactured 200 articles. He receives wage for a guaranteed 44-hour week at the rate of Rs. 15/hour. The estimated time to produce one article is 15 minutes and under incentive scheme the time allowed is increased by 20%. Calculate his gross wages under each of the following methods of remuneration :
Under a 50-50 sharing Earning = Hrs. Worked x Rate per Hr. + 50 / 100 (Time Allowed – Hrs. Worked) x Rate per
2. Halsey Weir Premium System
Same as above
3. Rowan System
Earning = Hrs. Worked x Rate per Hr. + Time Saved / Time Allowed x Hrs. Worked x Rate per Hr.
A. Time Rate
B. Piece-work with a guaranteed weekly wage
C. Rowan Premium Bonus
D. Halsey Premium bonus, 50 % to workman
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
A Time Rate
E = HW x RH
= 44 x 15
660
B Piece Rate
E = NU x RU
= 200 x 4.50
900
4. Barth Variable Sharing Plan
Earning = Rate per Hour x Standard Hrs x Act. Hrs. worked
5. Emerson Efficiency Bonus
Earning = Hours worked x Rate per Hour + Emerson Bonus percentage x Hours worked x Rate per hour
NU = 200 Time for one unit = 15 + 15x20/100 = 18 mins. Rate per minute = Rs.15 / 60 = Re.0.25 RU = 18 x 0.25 = Rs.4.50
= HW x RH + (E.B.P./100) x HW x RH
C Rowan Premium Bonus:
Schedule of Bonus
E = HW x RH + (TA - HW)/TA x HW x RH
Efficiency = 44 x Rs.15 + (60-44)/60 x 44 x 15 = Rs. 836
i)
Below 66.67% efficiency
No bonus, only time rate wages
ii)
66.67% to 100%
A bonus at first very small but increasingly rapidly to 20% above basic wages on 100% efficiency
D Halsey Premium Bonus (50-50 sharing) E = HW x RH + (50 x (TA - HW) x RH) / 100 = 44 x Rs. 15 + (50 x (60-44) x 15) / 100 = Rs. 780
Bonus
iii) Over 100%
A bonus of 20% above basic wage plus 1% for each 1% increase in efficiency
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
5
ILLUSTRATION :
ILLUSTRATION :
Standard time allowed for a job is 10 hours and hourly rate is Rs.10 for each worker. Actual time taken by worker A 12 hours, worker B 10 hours and worker C 8 hours. Calculate the total earnings and earning per hour under the Barth variable sharing plan.
From the following information calculate the bonus and earning under Emerson efficiency bonus :
Computation of Earnings : Worker
Total Earning (Rs.)
Earnings per hour (Rs.)
Standard Output in 10 Hours
-
120 units
Actual Output in 10 Hours
-
132 units
Time Rate
-
Rs. 10/Hour
Efficiency Percentage = 132 x 100 / 120 = 110%
A
12 x 10 x 10 = 34.64 =34.64 / 12 = 2.89
Bonus Percentage = 20 + (110-100) x 1 = 30%
B
10 x 10 x 10 = 31.62 =31.62 / 10 = 3.16
Bonus = (30/100) x 10 x Rs. 10
C
8 x 10 x 10 = 28.28
=28.28 / 8 = 3.54
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Group Bonus System – In many cases output of individuals
= Rs. 30
Earnings = 10 x Rs. 10 + (30/100) x 10 x Rs. 10 = Rs. 130 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Indirect Monetary Incentives –
can not be measured but output of group of workers can be conveniently measured. The total bonus determined according to productivity can then be shared equally, or between workers of differing skills in different specified proportions.
i) Profit Sharing – In profit sharing schemes there is an agreement between the employer and his workers whereby the employer pays them, in addition to wages, a predetermined share of the profits of the undertaking.
i) Budgeted Expense Bonus – Bonus is based on the savings in actual total expenditure compared with the total budgeted expenditure.
ii) Co-partnership – In co-partnership or co-ownership scheme employees get the opportunity to share in the capital of the business and to receive the part of profits that accrue to their share of ownership.
Non Monetary Incentives –
ii) Cost Efficiency Bonus – Bonus paid for the reduction either of total cost or of specific element of cost.
i) Education & Training, ii) Health & Safety iii) Canteen
iii) Priestman System – Bonus based on achieving certain standard. iv) Waste Reduction Bonus – This system provides incentive to workers with a view to reducing material waste to a minimum.
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
6
OVERHEAD Indirect Material
Function Prodn. OH Admn. OH Selling OH Distri. OH
Indirect Wages
PROCEDURE OF LINKING OF OVERHEAD Indirect Expenses
Variability
Normality
Controllability
Fixed OH Variable OH SV OH
Normal OH Abnor. OH
Controllable Uncontrollable
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Allocation & Apportionment of Overhead Absorption of Overhead
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Allocation & Apportionment of Overhead Absorption of Overhead
Based on some scientific and consistent basis, collection in different headings (groups) as suitable to organisation and on regular basis. Main sources from which OH are collected regularly: 1. Stores Requisition 2. Invoices 3. Wages Analysis Book 4. Journal Entries 5. Cash Book 6. Other Registers and Reports
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
PROCEDURE OF LINKING OF OVERHEAD Classification and Collection of Overhead
Classification and Collection of Overhead
Allocation – If the cost is directly traceable then it can be directly allocated to the particular cost centre or service centre. Apportionment – If cost is directly not traceable then case of apportionment on some suitable basis to the cost centre and service centre. e.g. Rent, Electricity charges, Telephone charges for the entire works For determination of suitable basis: i) Service or use ii) Survey Method iii) Ability to method
PROCEDURE OF LINKING OF OVERHEAD Classification and Collection of Overhead
Common OH Distribution Bases 1.Canteen Exp., Time Keeping,
No. of Employees or wages
General Welfare Exp.,
for each Dept.
Compensation and Other Fringe Benefits, and ESI Contribution of
Allocation & Apportionment of Overhead
Employer 2. Depreciation of Plants,
Capital Values
Machinery and equipments, Fire Insurance
Absorption of Overhead
3. Electric Light
No. of Light Points, Floor Space,
4. Delivery Expenses 5. Audit Fees
Hours Used, meter readings Weight, Volume, Tonne-Km Sales or Total Cost
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
7
The following figures are extracted from the accounts of a manufacturing concern for the month of Sep'05: Indirect Materials Rs. Items Production Dept. P1 950 Production Dept.
P2
1200 Area (sq. m.)
Production Dept.
P3
200 Assets Value
Maint. Dept.
S1
Stores Dept.
S2
Indirect Wages
1500 Kilowatt Hours 400 No. of Employees Rs.
Production Dept.
P1
900
Production Dept.
P2
1100
Production Dept.
P3
300
Maint. Dept. Stores Dept. Power and Light Insurance on Assets Rent & Rates Meal Charges
S1 S2
1000 650 6000 1000 2800 3000
Depreciation 6% on capital value of assets, p.a.. From the above prepare a primary distribution summary with the following primary departmental data:
Prdn. CC P1
P2
P3
4000
4000 3000
Service CC
Primary Distribution Summary
S1
S2
2000
1000
Items
4000 90
4400 1600 120
30
1500
500
40
20
Basis of
Total
Apportionment
100000 120000 80000 60000 40000
Prdn. CC P1
P2
Service CC P3
S1
S2
Indirect Material
Allocation
4250
950
1200
200
1500
400
Indirect Labour
Allocation
3950
900
1100
300
1000
650
Power & Light
Kilowatt Hours
6000
2000
2200
800
750
250
Depreciation
Value of assets
2000
500
600
400
300
200
Insurance
Value of assets
1000
250
300
200
150
100
Rent & Rates
Sq. m.
2800
800
800
600
400
200
Meal Charges
No. of Employees
3000
900
1200
300
400
200
23000
6300
Total
7400 2800
4500 2000
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
8
Labour Cost Indirect
Direct Cost of all labour expended in altering the construction, composition or condition of the product Directly Allocable
Varies directly with volume of output
Cost related to labour who are not so directly engaged in altering the construction, composition or condition of the product
Indirect
Direct It is variable so it can be easily controlled
-Production Planning -Use of Labour Budget -Use of Labour Standard -Effectiveness of wage incentive schemes -Labour performance report -Labour Cost Accounting
Apportionment of OH Not Variable
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Labour Cost Control – Different Functional Activities
Labour Turnover :
Personnel Dept. Time Keeping Dept. Payroll Dept.
It is not variable so it requires attention by Establishment of Suitable Budget Dept. wise and comparison of actual with standard.
Loss of employment in an organisation
High Cost Low Productivity
Causes of Labour Turnover : Avoidable Causes
Unavoidable Causes
-Redundancy
Personal Betterment
Dissatisfaction with job, remuneration, hours of work, working conditions,
Illness or Accident
Engg. & Work Study Dept. Cost Acctg. Dept.
Relationship with seniors and subordinates
Move from locality Retirement or death
Personnel Policies Dr. Ratnesh Chaturvedi, COMA, Session – 7-8 Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
1
Measurement of Labour Turnover : Separation Method :
No. of Separations in a period x 100 / Avg. no. of workers in the period
Replacement Method :
No. of Replacements in a period x 100 / Avg. no. of workers in the period
Flux Method :
½ (No. of Separations + No. of Replacements) x 100 / Avg. no. of workers
Illustration - Measurement of Labour Turnover : During Apr’05 the following information is obtained from the Personnel Dept. of a manufacturing concern : Labour force at beginning of the month 950 and 1050 at the end of the month. During the month 10 persons quit while 30 persons are discharged. 140 workers were engaged – out of which only 20 persons appointed in the vacancy created by the number of workers separated and the rest on account of an expansion scheme. Calculate the labour turnover rate.
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Separation Method :
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
No. of Separations in a period x 100 / Avg. no. of workers in the period = 40 x 100 / (950+1050)/2 = 4%
Cost of Labour Turnover :
Inefficiency of new labour
Preventive Cost
EALT Rate = 4 x 365 / 30 = 49.67% Replacement Method :
No. of Replacements in a period x 100 / Avg. no. of workers in the period = 20 x 100 / (950+1050)/2 = 2% EALT Rate = 2 x 365 / 30 = 24.33%
Flux Method :
½ (No. of Separations + No. of Replacements) x 100 / Avg. no. of workers = ½ ( 40+20) x 100 / (950+1050)/2 = 3% EALT Rate = 3 x 365 / 30 = 36.5%
Replacement Costs
Cost of personnel admn. Cost of medical services
Cost of selection and placement Training Costs Loss of output Increased spoilage
Cost of welfare services
Accident frequency
Pension schemes
Cost of tools & machine breakages
Should be apportioned to different departments in proportion to the number of persons engaged in each dept. Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
If due to fault of a particular dept. charge against that dept. Otherwise apportioned to different departments in proportion to the number of persons engaged in each dept.
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
2
LABOUR PRODUCTIVITY
Remuneration & Incentives When output is uniform :
Productivity is the index of efficiency showing the effectiveness of the individual or combined factors used in producing goods or services. Generally it is the ratio between output and input.
LP = Output / Actual Hrs.
When output consists of different types of products consuming different amount of time : LP = Prdn. In Standard Hrs. / Actual Hrs. Worked
Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Remuneration is total monetary earnings of employees. It consists of earnings according to time or on piece rate and includes other financial incentives.
In Fixing Remuneration following considerations are important : -The wages paid to employees of same type of organisation -The ability of the employers to pay -The needs of employee – Standard of living Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
Principles Applicable to all Incentive Schemes
Remuneration & Incentives
Remuneration Systems
Why Incentive Scheme ?????? -To increase the volume of production Time Rates
Piece Rates
Bonus Systems
Indirect monetary incentives
Nonmonetary incentives
-At Ordinary Levels
-Straight Piece Rates
-Profit Sharing
-At High wage levels
-Piece-rates with guaranteed day rates
-Individual bonus for direct workers
Welfare – Health, Sports, etc.
-To improve or at least maintain, the quality of product -To reduce the cost of production, and -To raise morale and increase efficiency of staff Factors in An Incentive Scheme : 1. Productivity OH Dr. Ratnesh Chaturvedi, COMA, Session – 7-8
2.Effect on Workers
3. Incidence of fixed
-Graduated Time Rates
-Differential piece rates
-Group bonus for direct workers
-Copartnership
-To indirect workers
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
3
Time Rates
-At Ordinary Levels
Earnings = Hrs. Worked x Rate /Hr.
-At High wage levels
More than above i.e. with incentive
-Graduated Time Rates
Adjusted time rate w.r.t. cost of living index
-Straight Piece Rates
Earnings = No. of units x Rate/unit
Differential Piece Rates
1. Taylor
2. Merrick
3. Gantt task & Bonus
1. Taylor Differential Piece Rate System – Not Popular & modified by Gantt & Merrick
Two Piece Rates : High Piece Rate – for output above standard (150% of low rate) Low Piece Rate – for output below standard
Piece Rates
-Piece-rates with guaranteed day rates
Or, Std. Hrs. of work produced x Rate per std. Hr.
Three Rates : Earnings = Guaranteed time rate plus a piece rate payment for output above a stated minimum
-Differential piece rates Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Differential Piece Rates
2. Merrick Differential Piece Rate System – Modification of Taylor System
Output percentage Standard Up to 83%
Ordinary Piece Rate
b)
83% to 100%
110% of Ordinary PR
c)
Over 100%
120% of Ordinary PR
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
1. Taylor
2. Merrick
1. Taylor
2. Merrick
3. Gantt task & Bonus
Illustration: The following is the output of workers A, B and C in a particular 40 hour week : A – 64 units, B – 74 units and C – 84 units
Three Rates : Output
Differential Piece Rates
3. Gantt task & Bonus
3. Gantt task & Bonus Plan : Combined time, bonus & piece rate
Payment
a)
Output below standard (High Task)
Time Rate (Guaranteed)
b)
Output at standard
Bonus @ 20% of the Time Rate
c)
Output over standard
High Piece Rate on worker’s whole output
Guaranteed time-rate Rs. 5 / hour Low Piece Rate – Rs. 2 per unit, High Piece Rate – Rs. 3 / unit, High task 80 units / week
Table Showing Earnings and Labour Cost Per Unit Merrick System Gantt Task System Worker Output / % of Task Taylor System Week (80Units) Earnings Cost/unit Earnings Cost/unit Earnings Cost/unit A B C
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Payment
a)
64 74 84
80 92.5 105
128 148 252
2 2 3
128 162.8 201.6
2 2.2 2.4
200 200 252
3.125 2.70 3
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
4
Bonus Systems
Individual bonus System
ILLUSTRATION :
Premium Bonus System is an incentive system in which the gain resulting from the increased output is shared between the employer and employees in agreed proportions. The premium bonus to be paid is calculated on the hours saved I.e. on the difference between the time allowed and the time taken. 1. Halsey Premium Plan
During one week the workman X manufactured 200 articles. He receives wage for a guaranteed 44-hour week at the rate of Rs. 15/hour. The estimated time to produce one article is 15 minutes and under incentive scheme the time allowed is increased by 20%. Calculate his gross wages under each of the following methods of remuneration :
Under a 50-50 sharing Earning = Hrs. Worked x Rate per Hr. + 50 / 100 (Time Allowed – Hrs. Worked) x Rate per
2. Halsey Weir Premium System
Same as above
3. Rowan System
Earning = Hrs. Worked x Rate per Hr. + Time Saved / Time Allowed x Hrs. Worked x Rate per Hr.
A. Time Rate
B. Piece-work with a guaranteed weekly wage
C. Rowan Premium Bonus
D. Halsey Premium bonus, 50 % to workman
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
A Time Rate
E = HW x RH
= 44 x 15
660
B Piece Rate
E = NU x RU
= 200 x 4.50
900
4. Barth Variable Sharing Plan
Earning = Rate per Hour x Standard Hrs x Act. Hrs. worked
5. Emerson Efficiency Bonus
Earning = Hours worked x Rate per Hour + Emerson Bonus percentage x Hours worked x Rate per hour
NU = 200 Time for one unit = 15 + 15x20/100 = 18 mins. Rate per minute = Rs.15 / 60 = Re.0.25 RU = 18 x 0.25 = Rs.4.50
= HW x RH + (E.B.P./100) x HW x RH
C Rowan Premium Bonus:
Schedule of Bonus
E = HW x RH + (TA - HW)/TA x HW x RH
Efficiency = 44 x Rs.15 + (60-44)/60 x 44 x 15 = Rs. 836
i)
Below 66.67% efficiency
No bonus, only time rate wages
ii)
66.67% to 100%
A bonus at first very small but increasingly rapidly to 20% above basic wages on 100% efficiency
D Halsey Premium Bonus (50-50 sharing) E = HW x RH + (50 x (TA - HW) x RH) / 100 = 44 x Rs. 15 + (50 x (60-44) x 15) / 100 = Rs. 780
Bonus
iii) Over 100%
A bonus of 20% above basic wage plus 1% for each 1% increase in efficiency
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
5
ILLUSTRATION :
ILLUSTRATION :
Standard time allowed for a job is 10 hours and hourly rate is Rs.10 for each worker. Actual time taken by worker A 12 hours, worker B 10 hours and worker C 8 hours. Calculate the total earnings and earning per hour under the Barth variable sharing plan.
From the following information calculate the bonus and earning under Emerson efficiency bonus :
Computation of Earnings : Worker
Total Earning (Rs.)
Earnings per hour (Rs.)
Standard Output in 10 Hours
-
120 units
Actual Output in 10 Hours
-
132 units
Time Rate
-
Rs. 10/Hour
Efficiency Percentage = 132 x 100 / 120 = 110%
A
12 x 10 x 10 = 34.64 =34.64 / 12 = 2.89
Bonus Percentage = 20 + (110-100) x 1 = 30%
B
10 x 10 x 10 = 31.62 =31.62 / 10 = 3.16
Bonus = (30/100) x 10 x Rs. 10
C
8 x 10 x 10 = 28.28
=28.28 / 8 = 3.54
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Group Bonus System – In many cases output of individuals
= Rs. 30
Earnings = 10 x Rs. 10 + (30/100) x 10 x Rs. 10 = Rs. 130 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Indirect Monetary Incentives –
can not be measured but output of group of workers can be conveniently measured. The total bonus determined according to productivity can then be shared equally, or between workers of differing skills in different specified proportions.
i) Profit Sharing – In profit sharing schemes there is an agreement between the employer and his workers whereby the employer pays them, in addition to wages, a predetermined share of the profits of the undertaking.
i) Budgeted Expense Bonus – Bonus is based on the savings in actual total expenditure compared with the total budgeted expenditure.
ii) Co-partnership – In co-partnership or co-ownership scheme employees get the opportunity to share in the capital of the business and to receive the part of profits that accrue to their share of ownership.
Non Monetary Incentives –
ii) Cost Efficiency Bonus – Bonus paid for the reduction either of total cost or of specific element of cost.
i) Education & Training, ii) Health & Safety iii) Canteen
iii) Priestman System – Bonus based on achieving certain standard. iv) Waste Reduction Bonus – This system provides incentive to workers with a view to reducing material waste to a minimum.
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
6
OVERHEAD Indirect Material
Function Prodn. OH Admn. OH Selling OH Distri. OH
Indirect Wages
PROCEDURE OF LINKING OF OVERHEAD Indirect Expenses
Variability
Normality
Controllability
Fixed OH Variable OH SV OH
Normal OH Abnor. OH
Controllable Uncontrollable
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Allocation & Apportionment of Overhead Absorption of Overhead
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Allocation & Apportionment of Overhead Absorption of Overhead
Based on some scientific and consistent basis, collection in different headings (groups) as suitable to organisation and on regular basis. Main sources from which OH are collected regularly: 1. Stores Requisition 2. Invoices 3. Wages Analysis Book 4. Journal Entries 5. Cash Book 6. Other Registers and Reports
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
PROCEDURE OF LINKING OF OVERHEAD Classification and Collection of Overhead
Classification and Collection of Overhead
Allocation – If the cost is directly traceable then it can be directly allocated to the particular cost centre or service centre. Apportionment – If cost is directly not traceable then case of apportionment on some suitable basis to the cost centre and service centre. e.g. Rent, Electricity charges, Telephone charges for the entire works For determination of suitable basis: i) Service or use ii) Survey Method iii) Ability to method
PROCEDURE OF LINKING OF OVERHEAD Classification and Collection of Overhead
Common OH Distribution Bases 1.Canteen Exp., Time Keeping,
No. of Employees or wages
General Welfare Exp.,
for each Dept.
Compensation and Other Fringe Benefits, and ESI Contribution of
Allocation & Apportionment of Overhead
Employer 2. Depreciation of Plants,
Capital Values
Machinery and equipments, Fire Insurance
Absorption of Overhead
3. Electric Light
No. of Light Points, Floor Space,
4. Delivery Expenses 5. Audit Fees
Hours Used, meter readings Weight, Volume, Tonne-Km Sales or Total Cost
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
7
The following figures are extracted from the accounts of a manufacturing concern for the month of Sep'05: Indirect Materials Rs. Items Production Dept. P1 950 Production Dept.
P2
1200 Area (sq. m.)
Production Dept.
P3
200 Assets Value
Maint. Dept.
S1
Stores Dept.
S2
Indirect Wages
1500 Kilowatt Hours 400 No. of Employees Rs.
Production Dept.
P1
900
Production Dept.
P2
1100
Production Dept.
P3
300
Maint. Dept. Stores Dept. Power and Light Insurance on Assets Rent & Rates Meal Charges
S1 S2
1000 650 6000 1000 2800 3000
Depreciation 6% on capital value of assets, p.a.. From the above prepare a primary distribution summary with the following primary departmental data:
Prdn. CC P1
P2
P3
4000
4000 3000
Service CC
Primary Distribution Summary
S1
S2
2000
1000
Items
4000 90
4400 1600 120
30
1500
500
40
20
Basis of
Total
Apportionment
100000 120000 80000 60000 40000
Prdn. CC P1
P2
Service CC P3
S1
S2
Indirect Material
Allocation
4250
950
1200
200
1500
400
Indirect Labour
Allocation
3950
900
1100
300
1000
650
Power & Light
Kilowatt Hours
6000
2000
2200
800
750
250
Depreciation
Value of assets
2000
500
600
400
300
200
Insurance
Value of assets
1000
250
300
200
150
100
Rent & Rates
Sq. m.
2800
800
800
600
400
200
Meal Charges
No. of Employees
3000
900
1200
300
400
200
23000
6300
Total
7400 2800
4500 2000
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
8
