COST AND MANAGEMENT ACCOUNTING ASSIGNMENT
TOPIC- HALSEY VS ROWAN PREMIUM PLAN
PREMIUM BONUS PLANS
The object of a premium plan is to increase the production by giving an inducement to the
workers in the form of higher wages for less time worked. Under a premium plan, a
standard time is fixed for the completion of a specific job or operation and the worker is
paid for the time taken by him to complete the job or operation at an hourly rate plus wages
for a certain fraction of the time saved by way of a bonus. It is to be recalled that standard
time is the time taken by the average worker and this time is determined on the basis of
time and motion study.
The plan is also known as incentive plan because a worker has the incentive to earn more
wages by completing the work in less time. For example, if a worker is allowed 10 hours to
complete the job and he is given bonus at the rate of 50% of time saved, he takes 6 hours to
complete the job. In this case, he will get wages for 8 hours i.e., wages for 6 hours (actual
time taken) plus wages for 2 hours (50% of time saved) as bonus.
The plan is also known as incentive plan because a worker has the incentive to earn more
wages by completing the work in less time. For example, if a worker is allowed 10 hours to
complete the job and he is given bonus at the rate of 50% of time saved, he takes 6 hours to
complete the job. In this case, he will get wages for 8 hours i.e., wages for 6 hours (actual
time taken) plus wages for 2 hours (50% of time saved) as bonus.
HALSEY PREMIUM PLAN
Under Halsey premium plan method, standard time for doing each job or operation is fixed
and the worker is given wages for the actual time he takes to complete the job or operation
at the agreed rate per hour plus a bonus equal to (usually) one-half of the wages of the time
saved. If, however, he does the job in less than the standard time, he gets a bonus equal to
50 percent of the wages of time saved; the employer benefits by the other 50 percent. The
scheme also is sometimes referred to as the Halsey fifty percent plan. Earnings under Halsey
Premium plan is calculated as under :
Wages= Time taken x Time rate + 50% of time saved x Time rate
Following are the advantages and disadvantages of the plan:
Advantages Disadvantages
1. Time rate is guaranteed while there 1. Incentive is not so strong as with
is opportunity for increasing piece rate system. In fact the
earnings by increasing production. harder the worker works, the
lesser he gets per piece.
2. The system is equitable in as much 2. The sharing principle may not be
as the employer gets a direct return liked by the employees.
for his efforts in improving
production methods and providing
better equipment.
Now we have an illustration to explain the working of the Halsey premium plan :
Calculate the earnings of a worker under Halsey premium plan. The relevant data is given
below-
Time rate (per hour) Rs 60
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours
Solution
Wages= Time taken x Time rate + 50% of time saved x Time rate
=6hrs x Rs 60 + ½ x (2hrs x Rs60)
=360 + 60
= Rs 420
ROWAN PREMIUM PLAN
This plan was introduced by James Rowan. Under this method, the standard time and
the standard rate of wage Payment are determined in the same manner as Halsey Plan.
The workers, who complete their work within standard time, are paid the wages at
standard rate. The workers, who complete their work in less time than the standard, are
paid wages at the standard rate plus some bonus. This bonus is calculated in proportion
of time saved. Under Rowan system the bonus is that proportion of the time wages as
time saved bears to the standard time. It is calculated as under-
Time taken x rate per hour + time saved/time allowed x time taken x rate per hour
Following are the advantages and disadvantages of the plan:
Advantages Disadvantages
It is claimed to be a fool proof system in as The system is complicated.
much as a worker can never double his
earnings even there is bad rate setting.
It is admirably suitable for encouraging The incentive is weak at high
moderately efficient workers as it production level where the time saved
provides a better return for moderate is more than 50% of the time allowed.
efficiency than under Halsey plan.
Now we have an illustration to explain the working of the Rowan premium plan :
Time rate (per hour) Rs 60
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours
Solution
Time taken x rate per hour + time saved/time allowed x time taken x rate per hour
= 6 hours x rs 60 + 2/8 hours x 6 hours x rs 60
=360 + 90
= Rs 450
HALSEY VS ROWAN PREMIUM PLAN : A COMPARISON
Halsey Rowan
Bonus Under this plan the bonus Under this plan the bonus
increases steadily with increases up to a certain level and
increase in efficiency starts declining thereafter. This
plan provides better bonus than
Halsey till the work is completed in
half the standard time.
Quality of work Quality of work is affected Quality of work is not much
much under Halsey plan as affected under this plan as bonus
bonus increases steadily increases at a decreasing rate at
with efficiency. higher levels of efficiency.
Motivational Motivates the employees to Discourages the employees.
work harder.
Overpayment There is danger of over No danger of overpayment.
payment.
Thank you
