Chapter

3
LABOUR CONTROL

Wages Rate
Every worker is required to work not more than 8 hours a day or 48 hours in a
week. If, due to the urgency of the work, a worker is required to work for more
than 8 hours a day, excess time over 48 hours i.e. overtime is to be paid to
the worker at a higher rate, generally at 150 percent of the normal wage rate.

Treatment of idle time

It is time during which no production is carried out because the worker
remains idle even though they are paid. The causes of labour idle time may
be classified as normal and abnormal.
Normal labour idle time arises due to unavoidable reason and cannot be
eliminated. Normal idle time is treated as a part of cost of production. In the
case of direct workers, the labour cost rate is inflated to cover the normal idle
labour cost. And in the case of indirect workers it is treated as production
overhead and spread over all the products or jobs through the process of
overhead absorption. Abnormal idle time arises due to avoidable reason.
Abnormal idle time cost is not included as a part of production cost and is
charged to costing profit and loss account.

Treatment of Overtime Premium

Work done beyond normal working hours is known as ‘overtime work’.
Overtime work has to be paid at double the rate of wages including dearness
allowance and the value of food concession. Overtime payment is the
amount of wages paid for overtime work. The extra amount so paid over the
normal rate is called overtime premium.
Under the cost accounting the overtime premium is treated as follows:
a. Where overtime is resorted to at the request of the customer, overtime
premium is charged to the job directly.
b. Where overtime is worked regularly as a policy due to labour shortage, the
overtime premium is treated as a part of labour cost and job is charged at an
inflated wage rate.
c. Where overtime worked irregularly to meet the requirement of production,
basic wage rate is charged to the job. Overtime premium is treated as factory
62 COST ACCOUNTING For CAP II (CA Inter)

overhead and spread over all the products or jobs through the process of
overhead absorption.
d. Where overtime worked on account of abnormal conditions such as flood,
earthquake etc. should not be charged to production cost but should be
charged to costing profit and loss account.

Labour Turnover
Labour turnover in an organization is the rate of change in the composition of
labour force during a specified period measured against a suitable index.
There are three methods of calculating labour turnover which are given below:

(i) Replacement Method.

= Number of employees replaced X 100
Average number of employees on roll

(ii) Separation Method

= Number of employees separated during the year X 100
Average number of employees on roll during the year

(iii) Flux Method

= Number of employees separated + Number of employees replaced X 100
Average number of employees on roll during the year

Labour turnover due to new recruitments

Workers joining a business concern on account of its expansion do not
account for labour turnover. This can be calculated as follows:
= No. of workers joining in a period (excluding replacement) X 100
Average number of employees on roll during the year

The total number of workers joining, including replacements, are called

accessions. The labour turnover, in such a case, may also be computed in
respect of total number of workers joining the business concern, during a
given period both on account of replacement and because of expansion is as
under:

= No. of accessions in a period X 100

Average number of employees in a period

When number of accessions are considered for measuring labour turnover,

the labour turnover rate by flux method may be computed by using any one
of the following formula:
= No. of separation + No .of replacements + No. of new recruitments X 100
Average number of workers

Or
 Labour Control 63

= No. of separations + No. of accessions X 100

Average number of workers

Note: If in the above calculations, the data given is for a period other than a
year, the labour turnover rate so computed may be converted into equivalent
annual turnover rate by the following formula:

= Turnover rate for the period X 365

No. of days in the period

System of wage payments and incentives

(a) Differential piece rate
i. Taylor’s differential piece work system
Under the Taylor’s piece work system the following rates are prescribed:
83% of the normal rate = If the efficiency level is less than 100%.
125% of normal rate = If the efficiency level of either 100% or more.
ii. Merrick differential piece rate system
Under this system three piece rates are prescribed for a job is fixed. None
of the fixed rates is below the normal. These three piece rates are as
below:
Efficiency Piece rate applicable
Upto 83% Normal rate
Above 83% and upto 100% 10% above normal rate
Above 100% 20% or 30% above normal rate

(b) Gantt task and bonus system (Time and piece work system)
Wages payable to workers under this plan are calculated as under:
Output Payment
Output below standard Guaranteed time rate
Output at standard Time rate plus bonus of 20%
usually of time rate
Output above standard High piece rate on worker’s whole
output. It is so fixed, so as to
include a bonus of 20% of the time
rate.

(c) Emerson’s efficiency system

Under this system minimum time wages are guaranteed. But beyond a
certain level, bonus in addition to minimum wages. Here efficiency is
measured in terms of output. Wages payable to workers under this plan
are calculated as under:

Performance Payment
Below 66.67% Guaranteed time rate
64 COST ACCOUNTING For CAP II (CA Inter)

Above 66 2/3% to 100% Basic wage plus bonus between

0.01% to 20%.
Above 100% Basic wage plus 20% bonus and
further bonus of 1% for each 1%
increase in efficiency over 100%.

(d) Point scheme or Bedeaux System

Under this scheme a standard time is allowed to perform the job.
Workers who are not able to complete tasks in allotted to them within the
standard time are paid at normal daily rate. Workers able to complete the
job in less than time allowed they are paid a bonus equal to 75 % of the
time saved.
Performance Payment
Upto standard time Guaranteed time rate
In less than standard time Guaranteed time rate plus bonus
equal to 75 % of time saved.

(e) Halsey Method

Under this scheme a standard time is allowed to perform each job or
process. If there is no saving on this standard time allowance, the worker
is paid only his daily rate. He gets his time rate even if he exceeds the
standard time limit. But he dose the job in less than the standard time, he
gets a bonus equal to 50% of the time saved.
Performance Payment
Upto standard time Guaranteed day wages
In less than standard time Guaranteed day wages plus 50%
of time saved

(f) Halsey Weir Method

Under this scheme a standard time is allowed to perform each job or
process. If there is no saving on this standard time allowance, the worker
is paid only his daily rate. He gets his time rate even if he exceeds the
standard time limit. But he dose the job in less than the standard time, he
gets a bonus equal to 30% of the time saved.
Performance Payment
Upto Standard time Guaranteed day wages
In less than standard time Guaranteed day wages plus 30%
of time Saved

(g) Rowan System

According to this system a standard time allowance is fixed for the
performance of a job and bonus is paid if time is saved. The formula
used to calculate wages is as follows:
Time taken ×Rate per Hour + Time saved ×Time taken ×Rate per hour
Time allowed

(h) Barth System

 Labour Control 65

The formula used to calculate the earning is as follows:

Hourly Rate ×√ Standard hours ×Hours worked

Group Bonus
Group bonus refers to the bonus paid for the collective efforts made by a
group of workers working together. Group bonus is based on the combined
output of the team as a whole. The group bonus is then distributed to the
individual members of the team on a suitable basis. The group bonus may be
shared in the proportion of wages on time basis.

Q.No. 1: December 2005 ICAN

What are the major factors to be considered for introducing an incentive
system?

Answer
The objective of wage incentives is to improve productivity and increase
production so as to bring down unit cost of production. In order to make the
incentives scheme effective the following major factors should be considered:
a. The reward for the job should be linked with the effort involved in the job.
b. The scheme should be fair to both employer and employees.
c. The scheme should be clearly defined and be capable of being
understood by the employees easily.
d. The scheme should take care that the employees are not penalized for
reasons beyond their control.
e. It should be capable of morale of the employees.
f. There should be guaranteed wage time basis.
g. The scheme should not be frequently changed.
Q.No. 2: June 2003(6 Marks)
Define labour turnover. Write about the causes of labour turnover.

Answer
Labour turnover in an organization is the rate of change in the composition of
labour force during a specified period measured against a suitable index.
The causes of labour turnover are grouped into three categories:
a. Personal causes;
b. Unavoidable causes; and
c. Avoidable causes
a. Personal causes
Personal causes are those which induce or compel workers to leave their
jobs such as:
i. change of jobs for betterment;
ii. premature retirement due to ill health or old age;
iii. domestic problem and families responsibilities.
b. Unavoidable causes
66 COST ACCOUNTING For CAP II (CA Inter)

Unavoidable causes are those under which it becomes obligatory on the part
of the management to ask one or more of their employees to leave the
organization such as:
i. seasonal nature of business;
ii. shortage of raw materials, power etc.
iii. disciplinary measures.
c. Avoidable causes
These causes are those which require the attention of management on a
continuous basis so as to keep the labour turnover ratio as low as possible
and causes include:
i. dissatisfaction with job, remuneration, job time etc.
ii. lack of training facilities.
iii. low wages and remuneration.
Q.No. 3:
Explain the meaning and the reasons for idle time and discuss its treatment
in cost accounting.

Answer
It is time during which no production is carried out because the worker
remains idle even though they are paid. The causes of labour idle time may
be classified as normal and abnormal.
Normal labour idle time arises due to unavoidable reason and cannot be
eliminated. Normal idle time is treated as a part of cost of production. In the
case of direct workers, the labour cost rate is inflated to cover the normal idle
labour cost. And in the case of indirect workers it is treated as production
overhead and spread over all the products or jobs through the process of
overhead absorption. Abnormal idle time arises due to avoidable reason.
Abnormal idle time cost is not included as a part of production cost and is
charged to costing profit and loss account.

Q.No. 4: November 2001(4 Marks)

Distinguish between job evaluation and merit rating.

Answer
Job Evaluation
Job evaluation is a procedure designed to rank jobs on a formal basis and to
measure the worth of a job for compensation purposes in relation to other
jobs. It requires written detailed description of work operations encompassed
by each job. The description used for job rating includes skill, responsibility,
effort and conditions attached to each job.
Merit Rating
Merit rating is concerned with the evaluation of the individual employee. It is
used to rate an employee’s performance to assist in determining whether a
 Labour Control 67

person should receive a merit award, promotion, demotion etc. The

description used for merit rating includes attendance, cooperation, discipline,
skill etc.
Q.No. 5:
Discuss time keeping and time booking.

Answer
Time Keeping
Time keeping is the marking of the attendance of a worker when he comes
and leaves the factory. It is recording of time of arrival and departure at the
factory gate. The time records are the basic data used for calculation of
salaries, wages, overtime premium etc.
Time Booking
It is the allocation of time spent by the workers upon different jobs. It is the
keeping records f particulars of work done i.e. time spent on each job,
process, etc. It is used to ascertain the labour time spent on each job,
analysis of overtime, idle time etc. The time booked is used to evaluate the
performance of labour by comparing actual time booked with standard or
budgeted time.
Q.No. 6: November 2001(4 Marks)
Discuss the accounting treatments of idle time wages and overtime wages in
cost accounting.

Answer
Treatment of idle time wages
Normal labour idle time arises due to unavoidable reason and cannot be
eliminated. Normal idle time is treated as a part of cost of production. In the
case of direct workers, the labour cost rate is inflated to cover the normal idle
labour cost. And in the case of indirect workers it is treated as production
overhead and spread over all the products or jobs through the process of
overhead absorption. Abnormal idle time arises due to avoidable reason.
Abnormal idle time cost is not included as a part of production cost and is
charged to costing profit and loss account.
Treatment of overtime wages
a. Where overtime is resorted to at the request of the customer, overtime
premium is charged to the job directly.
b. Where overtime is worked regularly as a policy due to labour shortage, the
overtime premium is treated as a part of labour cost and job is charged at an
inflated wage rate.
c. Where overtime worked irregularly to meet the requirement of production,
basic wage rate is charged to the job. Overtime premium is treated as factory
68 COST ACCOUNTING For CAP II (CA Inter)

overhead and spread over all the products or jobs through the process of
overhead absorption.
d. Where overtime worked on account of abnormal conditions such as flood,
earthquake etc. should not be charged to production cost but should be
charged to costing profit and loss account.
Q.No. 7:
In a factory working 6 days in a week and eight hours each day, a worker is
paid at the rate of Rs.100 per day basic plus DA @ 120% of basic. He is
allowed to take 30 minutes off during his hours shift for meals-break and a 10
minutes recess for rest. During a week, his card showed that his time was
chargeable to:
Job X 15 hours
Job Y 12 hours
Job Z 13 hours
The time not booked was wasted while waiting for a job. In Cost Accounting,
how would you allocate the wages of the workers for the week?

Solution:
Statement showing allocation of Wages
Particulars Amount
(Rs.)
Job X (15 Hours ×Rs.30) 450
Job Y (12 Hours ×Rs.30) 360
Job Z (13 Hours ×Rs.30) 390
Costing P & L Account (4 Hours ×Rs.30) 120
Total 1,320

Working Note:
1. Total normal working hours per week
= (8 hours – 30 Minute – 10 Minute) × 6 Days
= (480 Minutes – 40 Minutes) × 6 Days
= 2640 Minutes
= 44 Hours
2. Wages per week
= (Rs.100 Basic + Rs.120 DA) × 6 days
= Rs.1,320

3. Wages per hour

= Wages per week / Normal working hours
= Rs.1,320 / 44 hours
= Rs.30 per hour
4. Abnormal idle time
 Labour Control 69

= Normal Working Hours – Productive Hours

= 44 Hours – (15 + 12 +13)
= 4 Hours

Q.No. 8:
Calculate the labour hour rate of a worker X from the following data:
Basic pay Rs.1,000 p.m.
D.A. Rs.300 p.m.
Fringe benefit Rs.100 p.m.
Number of working days in a year 300. 20 days are availed off as holidays on
full pay in a year. Assume a day of 8 hours.

Solution:
Calculation of Labour Hour Rate
Labour Hour Rate
= Total Wages / Normal Productive Hours
= Rs.16,800 / 2240 Hours
= Rs.7.50 per Hour

Working Note:
1. Calculation of normal productive hours per annum
Normal Working Days = 200
Less: Normal Holidays = 20
Normal Productive Days 280
Normal Productive Hours (280 Days × 8 Days) = 2,240 Hours

2. Calculation of total wages

Basic pay (Rs.1,000 × 12 months) = Rs.12,000
DA (Rs.300 × 12 months) = Rs.3,600
Fringe Benefit (Rs.100 × 12) = Rs.1,200
Total = Rs.16,800

Q.No. 9:
X an employee of ABC Co. gets the following emoluments and benefits:
(a) Basic pay Rs.1,000 per month
(b) Dearness Allowance Rs.200 per month
(c) Bonus 20% of salary and DA
(d) Other allowance Rs.250 per month
(e) Employee’s contribution to PF 10% of salary and DA
X works for 2,400 hours per annum, out of which 400 hours are non-
productive and treated as normal ideal time. You are required to find out the
effective hourly cost of employee ‘X’.

Solution:
70 COST ACCOUNTING For CAP II (CA Inter)

Effectively Hourly Cost of Employee X

= Total Wages per Year / Total Normal Productive Hours per Year
= Rs.21,720/ 2,000 Hours
= Rs.10.80

Working Note:
Calculation of total wages per year of Employee X
Basic Pay ( Rs.1,000 ×12) = Rs.12,000
DA (Rs.200 ×12) = Rs.2,400
Bonus (20 % of Rs.14,400) = Rs.2,880
Other Allowances (Rs.250 ×12 = Rs.3,000
Employer’s Contribution to PF (10% of Rs.14,400)= Rs.1,440
Total Rs.21,720
Q.No. 10:
It is seen from the job card for repair of the customer’s equipment that a total
of 154 labour hours have been put in as detailed below:
Worker ‘A’ paid at Worker ‘B’ paid at Worker ‘C’ paid at
Rs.2 per day of Rs.1 per day of Rs.3 per day of
8 hours 8 hours 8 hours
Monday 10 – ½ hours 8 Hours 10 – ½ hours
Tuesday 8 ” 8 ”
8 ”
Wednesday 10 – ½ ” 8 ” 10 –
½ ”
Thursday 9– ½ ” 8 ” 9 –
½ ”
Friday 10 – ½ ” 8 ” 10 –
½ ”
Saturday -- 8 ” 8 ”
Total 49 hours 48 hours57 hours
In terms of an award in a labour conciliation, the workers are to be paid
dearness allowance on the basis of cost living index figure relating to each
month which works out @ Rs.96 for the relevant month. The dearness
allowance is payable to all workers irrespective of wage rate if they are
present or are on leave with wages on all working days.
Sunday is weekly holiday and each worker has to work for 8 hours on all
week days and 4 hours on Saturdays; the workers are however paid full
wages for Saturday (8 hours for 4 hours worked)
Workers are paid overtime according to the Factories Act for hours worked in
excess of normal working hours on each day. Excluding holidays (including 4
hours work to be put in on Saturday) the total number of hours work out to
172 in the relevant month. The company’s contribution to provident fund and
employees state insurance premium are absorbed into overheads.
Work out the wages payable to each worker.

Solution:
 Labour Control 71

Labour Act 1992

If any worker or employee is engaged to work for mare than 8 hours in any
day or for more than 48 hours in any week, he shall be paid remuneration for
such overtime work at the rate of 150% of his usual remuneration.

Calculation of hours to be paid to A

Days Hours Normal Overtime Equivalent Total
worked Hours Hours Normal Normal
Hours Hours
a b c d e f (c + e)
Monday 10-1/2 8 2-1/2 3-3/4 11-3/4
Tuesday 8 8 - - 8
Wednesday 10-1/2 8 2-1/2 3-3/4 11-3/4
Thursday 9-1/2 8 1-1/2 2-1/4 10-1/4
Friday 10-1/2 8 2-1/2 3-3/4 11-3/4
Total 49 40 9 13-1/2 53-1/2

Calculation of hours to be paid to B

Days Hours Normal Overtime Equivalent Total
worked Hours Hours Normal Normal
Hours Hours
a b c d e f (c + e)
Monday 8 8 - - 8
Tuesday 8 8 - - 8
Wednesday 8 8 - - 8
Thursday 8 8 - - 8
Friday 8 8 - - 8
Saturday 8 8 4 4 12
Total 40 40 4 4 52

Calculation of hours to be paid to C

Days Hours Normal Overtime Equivalent Total
worked Hours Hours Normal Normal
Hours Hours
a b c d e f (c + e)
Monday 10-1/2 8 2-1/2 3-3/4 11-3/4
Tuesday 8 8 - - 8
Wednesday 10-1/2 8 2-1/2 3-3/4 11-3/4
Thursday 9-1/2 8 1-1/2 2-1/4 10-1/4
Friday 10-1/2 8 2-1/2 3-3/4 11-3/4
Saturday 8 8 4 4 12
Total 57 40 13 17-1/2 65-1/2

Statement showing wages payable to each worker

Workers A B C
72 COST ACCOUNTING For CAP II (CA Inter)

Basic wages per hour (Rs.) 0.25 0.125 0.375

DA per Hours (Rs.) 0.50 0.50 0.50
(96/24 Days × 1/8)
Hourly Rate (Rs.) 0.75 0.625 0.875
Equivalent Normal Hours 53-1/2 52 65-1/2
Wages Payable 40.125 32.50 57.3125
(0.75 ×53-1/2) (0.625 ×52) (0.875 ×65-1/2)

Q.No. 11:
In a factory, the basic wage rate is Rs.10 per hour and overtime rates are as
follows:
Before and after normal working hours : 175% of basic
wage rate
Sundays and holidays : 225% of basic
wage rate

During the previous year, the following hours were worked:

Normal time : 1,00,000 hours
Overtime before and after working hours : 20,000 hours
Overtime on Sundays and holidays : 5,000 hours
Total 1,25,000 hours

The following hours have been worked on job ‘Z’:

Normal : 1,000 hours
Overtime before and after working hours : 100 hours
Overtime on Sundays and holidays : 25 hours
Total 1,125 hours

You are required to calculate the labour cost chargeable to jobs ‘Z’ and
overhead in each of the following instances:

(a) Where overtime is worked regularly throughout the year as a policy due
to the labour shortage.
(b) Where overtime worked irregularly to meet the requirement of production.
(c) Where overtime is worked at the request of the customer to expedite the
job.

Solution:

Statement showing Labour Cost and Overhead Chargeable to Job Z

(a) Where overtime is worked regularly as a policy due to labour shortage
The overtime premium is treated as part of labour cost and job is charged at
an inflated wage rate.
Labour cost and overhead chargeable to job Z,
Labour Cost =1125 hours ×Rs.11.70 = 13,162.50
 Labour Control 73

Overheads = Nil
Total 13,162.50
(b) Where overtime is worked irregularly to meet the requirement of production
Basic wage rate is charged to the job and overtime premium is charged to
factory overhead.
Labour cost and overhead chargeable to job Z,
Labour Cost =1125 hours ×Rs.10 = 11,250
Factory Overheads,
100 hours ×Rs.7.50 = 750
25 hours ×Rs.12.50 = 312.50
Total 12,312.50
(c) Where overtime is worked at the request of the customer
Overtime premium is also charged to the job.
Labour cost and overhead chargeable to job Z,
Labour Cost =1125 hours ×Rs.10 = 11,250
Overtime premium,
100 hours ×Rs.7.50 = 750
25 hours ×Rs.12.50 = 312.50
Overheads = Nil
Total 12,312.50

Working Note:
(1) Calculation of inflated wage rate
Basic Rate per hour Rs.10
Overtime rate before and after normal working hours Rs.17.50
(175% of Rs.10)
Overtime rate on holidays Rs.22.50
(225% of Rs.10)
Total wages for the previous year
Normal Time (100,000 hours ×Rs.10) Rs.1,000,000
Before and after normal working hours
(20,000 hours ×Rs.17.50) Rs.350,000
On holidays (5,000 hours ×Rs.22.50) Rs.112,500
Total Rs.1,462,500
Total hours worked for the previous year 125,000

Inflated wage rate,

= = Rs.11.70

(2) Overtime premium for overtime before and after normal working hours
Rs.17.50 – Rs.10 = Rs.7.50 per hour
(3) Overtime premium for overtime on holidays
74 COST ACCOUNTING For CAP II (CA Inter)

Rs.22.50 – Rs.10 = Rs.12.50 per hour

Q.No. 12:
The management of Bina and Rina are worried about their increasing labour
turnover in the factory and before analyzing the cause and taking remedial
steps, they want to have an idea of the profit foregone as a result of labour
turnover in the last year.

Last year sales amounted to Rs.83,03,300 and P/V ratio was 20%. The total
number of actual hours worked by the Direct Labour force was 4.45 Lakhs. As
a result of the delays by the Personnel Department inn filling vacancies due
to labour turnover, 1,00,000 potentially productive hours were lost. The actual
direct labour hours included 30,000 hours attributable to training the new
recruits, out of which half of the hours were unproductive.

The cost incurred consequent on labour turnover revealed, on analysis, the

following:
Settlement cost due to leaving Rs.43,820
Recruitment costs Rs.26,740
Selection costs Rs.12,750
Training costs Rs.30,490

Assuming that the potential production lost as a consequence of labour

turnover could have been sold at prevailing prices, find the profit foregone
last year on account of labour turnover.

Solution:
Statement showing profit foregone last year due to labour turnover
Particulars Rs.
Contribution forgone (W .N. ) 386,200
Settlement cost due to leaving 43,820
Recruitment cost 26,740
Selection cost 12,750
Training cost 30,490
Profit forgone 500,000

Working Note:
(1) Sales foregone due to labour turnover last year
Sales of Last Year Rs.8,303,300
Total Labour Hours of Last Year 445,000
Less: Unproductive hours 15,000
Productive hours 430,000
Productive hours lost due to labour turnover 100,000

Sales Foregone due to labour turnover

 Labour Control 75

x 100,000

= Rs.1,931,000
(2) Contribution foregone due to labour turnover
= Rs.1,931,000 x 20%
= Rs.386,200
Q.No. 13:
The Cost Accountant of Y Ltd has computed labour turnover ratio for the
quarter ended 31st March 1997 as 10%, 5% and 3% respectively under ‘Flux
Method’, ‘Replacement Method’ and ‘Separation Method’ respectively. If the
number of workers replaced during the quarter is 30, find out the number of:
(1) Workers recruited and joined and (2) workers left and discharged.

Solution:
(a) Calculation of no. of workers left and discharged (No. of Separation)
Labour Turnover Rate =
(Under Separation Method)
No. of Separation x 100
Average no. of workers

Or, 3% = No. of Separation

600
Or, No. of Separation = 18
i.e. no. of workers left and discharged was 18
(b) Calculation of no. of workers recruited and joined (Accessions)
Labour Turnover Rate =
(Under Flux Method)
No. of Separation + No. of Accessions x 100
Average no. of workers
Or, 10/100 = (18 + No. of accessions)/600
Or, 60 = 18 + No. of accessions
Or, No. of accessions = 60-18 = 42
i.e. no. of workers recruited and joined was 42

Working Note
(1) Calculation of average number of workers
Labour Turnover Rate =
(Under replacement Method)
No. of replacement x 100
Average no. of workers
Or, 5% = 30
Average no. of workers

Or, Average no of workers = (100 x 30)/5 = 600

76 COST ACCOUNTING For CAP II (CA Inter)

Q.No. 14:
(a) Using Taylor’s differential piece rate system, find the earnings of the
Amar, Akbar and Ali from the following particulars:
Standard time per piece : 20 minutes
Normal rate per hour : Rs.9.00
In a 8 hour day
Amar produced : 23 units
Akbar produced : 24 units
Ali produced : 30 units
(b) Using the above information compute the earning as per Merrick
Differential Piece Rate system.

Solution:
(a) Statement showing earnings of Amar, Akbar and Ali (under Taylor’s differential piece rate
system)
Workers Amar Akbar Ali
Standard output (Units) 24 24 24
Actual Output (Units) 23 24 30
Efficiency Rate (%) 95.83 100 125
(23/24 ×100) (24/24 ×100) (30/24 ×100)
Earning rate per piece 2.49 3.75 3.75
(Rs.)
(83% of normal (125% of normal 125% of normal
piece rate) piece rate) piece rate)
Earnings (Rs.) 57.27 90 112.50
(23 ×2.49) (24 ×3.75) (30 ×3.75)

(b) Statement showing earnings of Amar, Akbar and Ali (under Merrick differential piece rate
system)
Workers Amar Akbar Ali
Standard output 24 24 24
(units)
Actual Output (units) 23 24 30
Efficiency (%) 95.83 100 125
(23/24 ×100) (24/24 ×100) (30/24 ×100)
Earning rate per piece 3.30 3.30 3.60 or 3.90
(Rs.)
(10% above (10% above (20% or 30%
normal piece rate) normal piece rate) above normal
piece rate)
Earnings (Rs.) 75.90 79.20 108 or 117
(23 ×3.30) (24 ×3.30) (30 ×3.30)

Working Note:
 Labour Control 77

(1) Calculation of Standard Output per day

Standard time per piece 20 minutes
Working hours per day 8 hours
Standard output (per day) =
8 ×60 minutes
20 minutes
= 24 units
(2) Calculation of Normal Piece Rate
Normal rate per hour Rs.9
Working hours per day 8 hours
Normal earnings per day (8 hours ×Rs.9) Rs.72
Normal production for 8 hours 24 units
Normal rate per piece (Rs.72 / 24 units) Rs.3

Q.No. 15:
In a factory the standard time allowed for completing a given task (50 units),
in a 8 hours. The guaranteed time wage are Rs.20 per hour. If a task is
completed in less than standard time, the high rate of Rs.4 per unit is payable.
Calculate the wages or a worker, under the Gantt system, if he completes the
task in:
(i) 10 hours; (ii) 8 hours; and (iii) in 6 hours. Also ascertain the comparative
rate of earnings per hour under the three situations.

Solution:

(a) Wages payable if the worker performs the task in 10 hours

Standard Time allowed 8 hours
Actual time taken 10 hours
Performance below standard
He will be paid guaranteed time rate.
Earnings (10 hours ×Rs.20 per hour) = Rs.200

(b) Wages payable if the worker performs the task in 8 hours

Standard Time Allowed 8 hours
Actual Time Allowed 8 hours
Performance at Standard
He will be paid time rate wage plus bonus of 20% of time rate wages.
Earnings,
Wages 8 hours ×Rs.20 per hour = Rs.160
Bonus 20% of Rs.160 = Rs.32
Total Rs.192

(c) Wages payable if the worker performs the task in 6 hours

Standard Time Allowed 8 hours
Actual Time Taken 6 hours
78 COST ACCOUNTING For CAP II (CA Inter)

Performance above Standard

He will be paid high piece rate on whole output.
Earnings,
Wages 50 units ×Rs.4 per unit = Rs.200

Statement showing comparative rate of earning per hours under the three situations
Task Completed in (Hours ) 10 Hours 8 Hours 6 Hours
Total Earnings (Rs.) 200 192 200
Hourly Rate (Rs.) 20 24 33.33
(200/10) (192/8) (200/6)

Question No. 17
From the following information you are required to calculate the bonus and
earnings under Emerson Efficiency system. The relevant information is as
under:
Standard working hours : 8 hours a day
Standard output per hour in units : 5
Daily wage rate : Rs.50
Actual output
Worker A 25 units
Worker B 40 units
Worker C 45 units
(Ans. Total earnings of A, B and C Rs.50 , Rs.60 and Rs.66.25 respectively)

Q.No. 16:
Calculate the earnings of worker from the following information under
Bedeaux system:
Standard time for a product A: 30 seconds plus relaxation allowance of 50%.
Standard time for a product B: 20 seconds plus relaxation allowance of 50%.
During 8 hour day:
Actual output of product A : 500 units
Actual output of product B : 300 units
Wage rate : Rs.10 per hour

Solution:
(a) Time allowed (standard time) for 500 units of A and 300 units of B
= 500 Units ×45 Seconds + 300 units ×30 Seconds
= 31500 seconds
= 8 Hours 45 Minutes
(b) Actual time taken 8 hours
(c) Time Saved 45 Minutes
(d) Earnings,
Wages 8 Hours ×Rs.10 =Rs.80
Bonus 45 Minutes ×75/ 100 ×10/60 =Rs.5.625
Total Earnings Rs.85.625

Q.No. 17:
 Labour Control 79

(a) Calculate the earnings of a worker under Halsey System. The relevant
data is as below:
Time rate (p.h.) Re.0.6
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours
(b) Taking the above information, calculate the earning as per Rowan
system also.

Solution:
(a) Calculation of earnings under Halsey Scheme
Earnings = Day Wages + 50% Bonus of Time Saved
= 6 Hours ×Rs.0.60 + 1/2 (2 Hours ×Rs.0.60)
= Rs.3.60 + Rs.0.60
= Rs.4.20
(b) Calculation of earnings under Rowan Scheme
Earnings = Time Taken ×Time Rate + (Time Saved/ Time allowed)
×Time Taken ×Time Rate
= 6 Hours ×Rs.0.60 + (2 Hours/8 Hours) ×6 Hours ×Rs.0.60
= Rs.3.60 + Rs.0.90
= Rs.4.50
Q.No. 18:
A factory having the latest sophisticated machines wants to introduce an
incentive scheme for its workers, keeping in view the following:
a. The entire gains of improved production should not go to the workers.
b. In the name of speed, quality should not suffer.
c. The rate setting department being newly established are liable to commit
mistakes.
You are required to devise a suitable incentive scheme and demonstrate by
an illustrative numerical example how your scheme answers to all the
requirements of the management.
Q.No. 19:

(a) Bonus paid under the Halsey Plan with bonus at 50% for the time saved
equals the bonus paid under the Rowan System. When will this
statement hold good? (Your answer should contain the proof).
(b) The time allowed for a job is 8 hours. The hourly rate is Rs.8. Prepare a
statement showing:
(i) The bonus earned.
(ii) The total earnings of labour and
(iii) Hourly earning
Under the Halsey System with 50% bonus for the time saved and Rowan
system for each hour saved progressively.
Q.No. 20:
Mr. A is working by employing 10 skilled workers. He is considering the
introduction of some incentive scheme – either Halsey Scheme (with 50%
80 COST ACCOUNTING For CAP II (CA Inter)

bonus) or Rowan Scheme – of wage payment for increasing the labour

productivity to cope with the increased demand for the product by 25%. He
feels that if the proposed incentive scheme could bring about an average
20% increase over the present earnings of the worker, it could act as
sufficient incentive for them to produce more and he has accordingly given
this assurance to the workers.
As a result of the assurance, the increase in productivity has been observed
as revealed by the following figures for the current month:
Hourly rate of wages (guaranteed) Rs.200
Average time for producing 1 piece by one worker
at the previous performance 2 hours
(This may be taken as time allowed)
No. of working days in the month 25
No. of working hours per day for each worker 8
Actual production during the month 1,250 units
Required:
(1) Calculate effective rate of earnings per hour under Halsey Scheme and
Rowan Scheme.
(2) Calculate the savings to Mr. A in terms of direct labour cost per piece
under the schemes.
(3) Advise Mr. A about the selection of the scheme to fulfill his assurance.

Solution:
1. Calculation of Effective Hourly Rate of Earning under Halsey Scheme
(a) Wages of the 10 workers for the month
= 25 Days ×8 Hours ×10 Workers ×Rs.2 per Hour = Rs.4,000
(b) Time Allowed (Standard Time) for producing 1250 units
= 1250 units ×Rs.2 per unit = 2500 hours
(c) Actual Time Taken
= 25 Days ×8 Hours ×10 Workers = 2000 hours
(d) Time Saved
= 2500 hours – 2000 Hours = 500 hours
(e) Bonus
50 % of time saved ×Time Rate
= ½ of 500 hours ×Rs.2 = Rs.500
(f)Total Earnings
Wages + Bonus = (Rs.4000 + Rs.500) =
Rs.4,500
(g) Effective rate of earnings
= Total earnings / Total Hours Worked
= Rs.4,500 / 2000 hours = Rs.2.25
2. Calculation of Effective Hourly Rate of Earning under Rowan Scheme
(a) Bonus
= (Time Taken/Time Allowed) ×Time Saved ×Time Rate
= (2000 Hours/2500 Hours) ×500 Hours ×Rs.2= Rs.800
(b) Total Earnings
 Labour Control 81

= Wages + Bonus = (Rs.4,000 + Rs.800) = Rs.4,800

(c) Effective rate of earnings
= Total Earnings/ Total hours worked
= Rs.4,800/ 2000 hours = Rs.2.40
3. Savings to Mr. A in terms of direct labour cost per piece under Halsey Scheme
(a) Time Wages per piece
= 2 hours ×Rs.2 = Rs.4
(b) Wages per piece under Halsey Scheme
= Total wages/ Total Units
= Rs.4500 / 1250 hours = Rs.3.60
(c) Savings in direct labour cost per piece = Rs.0.40
4. Savings to Mr. A in terms of direct labour cost per piece under Rowan Scheme
(a) Time wages per piece
= 2 Hours ×Rs.2 per piece = Rs.4
(b) Wages per piece under Rowan Scheme
= Total wages/ Total Units
= Rs.4,800/1,250 units = Rs.3.84
(c) Saving per piece
= Rs.4 – Rs.3.84 = Rs.0.16
Evaluation
Labour cost per piece under Halsey Scheme is lower than cost per piece
under Rowan Scheme.
Increment in earning under Halsey
= (Rs.500/Rs.4,000) ×100%
= 12.5%
Increment in earnings under Rowan
= (Rs.800/ Rs.4,000) ×100% = 20%

However, increment in earning under Halsey Scheme do not fulfill assured

increment of 20%, so Rowan Scheme may be adopted.

Q.No. 21:
Wage negotiations are going on with the recognized Labour Union and the
Management wants you as Cost Accountant of the company to formulate an
incentive scheme with a view to increase productivity.
The case of three typical workers Achyuta, Ananta and Govida who produce
respectively 180, 120 and 100 units of the company’s product in a normal day
of 8 hours is taken up for study.
Assuming that day wages would be guaranteed at 75 paise per hour and the
piece rate would be based on a standard hourly output of 10 units, calculate
the earnings of each of the three workers and the labour cost per 100 pieces
under (i) Day wages, (ii) Piece rate, (iii) Halsey scheme, and (iv) The Rowan
Scheme.
Also calculate under the above schemes the average cost of labour for the
company to produce 100 pieces.
82 COST ACCOUNTING For CAP II (CA Inter)

Solution:
(a) Earnings of three workers and labour cost per 100 pieces under Day Wages
Workers Achyuta Ananta Govinda
Wages Eared (8 Hours @ 6.00 6.00 6.00
Rs.0.75) (Rs.)
Actual Output (units) 180 120 100
Labour cost per 100 pieces (Rs.) 3.33 5.00 6.00
(6/180) ×100 (6/120) ×100 (6/100)
×100
Average labour cost for producing 100 pieces
= Rs. (6 + 6 + 6) ×100 units
(180 + 120 +100) units
= Rs.4.50
(b) Earning of three workers and labour cost per 100 piece under piece rate
Workers Achyuta Ananta Govinda
Actual Output (units) 180 120 100
Wages earned @0.075 per piece 13.50 9 7.50
(Rs.)
Labour cost per 100 piece 7.50 7.50 7.50
@0.075 per piece (Rs.)

Average labour cost for producing 100 pieces

= Rs. (13.50 + 9 + 7.50) ×100 units
(180 + 120 +100) units
= Rs.7.50

Working Note:
Calculation of piece rate
Standard output per hour = 10 piece
Rate per hour = Rs.0.75
Rate per piece (Rs.0.75/ 10 units) = Rs.0.075
(c) Earnings of three workers and labour cost per 100 pieces under Halsey Scheme@0.075 per
piece
Workers Achyuta Ananta Govinda
Actual Output (Pieces) 180 120 100
Actual Allowed (Hours) 8 8 8
Time Allowed @ 10 units per 18 12 10
hour (Hours)
Time Saved (Hours) 10 4 2
Day Wages (Rs.) 6 6 6
Bonus (50% of Time saved) 3.75 1.50 0.75
(Rs.)
(50%×10×0.75) (50% × 4 × (50%×2×0.75)
0.75)
 Labour Control 83

Total Earning (Wages + 9.75 7.50 6.75

Bonus) (Rs.)
Labour cost per 100 pieces 5.42 6.25 6.75
(Rs.)
(9.75/180) ×100 (7.50/120) ×100 (6.75/100) ×100

Average labour cost for producing 100 pieces

= Rs. (9.75 + 7.50 + 6.75) ×100 units
(180 + 120 +100) units
= Rs.6.00
(d) Earnings of three workers and labour cost per 100 pieces under Rowan Scheme piece
Workers Achyuta Ananta Govinda
Actual Output (Pieces) 180 120 100
Time Allowed @ 10 units per 18 12 10
hour (Hours)
Actual Time Taken (Hours) 8 8 8
Time Saved (Hours) 10 4 2
Wages (Time taken ×Time rate) 6 6 6
(Rs.)
Bonus (Time saved ×Time 3.33 2.00 1.20
Taken)/ Time allowed
Total Earnings (Wages + bonus) 9.33 8.00 7.20
Labour cost per 100 pieces 5.18 6.67 7.20
(9.33/180) (8/120) ×100 (7.20/100)
×100 ×100

Average labour cost for producing 100 pieces

= Rs. (9.33 + 8.00 + 7.20) ×100 units
(180 + 120+ 100) units
= Rs.6.1325

Q.No. 22:
A, B and C were engaged on a group task for which a payment of Rs.725 was
to be made. A’s time basic wages are Rs.8 per day, B’s Rs.6 per day and C’s
Rs.5 per day. A worked for 25 days; B worked for 30 days; and C worked for
40 days. Distribute the amount of Rs.725 among the three workers.

Solution:
1. Total Payment for the task Rs.725
2. Total wages on time basis
Worker A = 25 days @ Rs.8 = Rs.200
Worker B = 30 days @ Rs.6 = Rs.180
Worker C = 40 days @ Rs.5 = Rs.200
Total Rs.580

3. Bonus (1-2) Rs.145

84 COST ACCOUNTING For CAP II (CA Inter)

4. Percentage of bonus over time wages

= (Rs.145/ Rs.580) ×100% 25%
Statement showing distribution of amount of Rs.725 among the three workers
Workers A (Rs.) B(Rs.) C(Rs.)
Wages (on time basis) 200 180 200
Bonus (25% of time wages) 50 45 50
Total Earnings (Wages + Bonus) 250 225 250

Q.No. 23:
Both direct and indirect labour of a department in a factory are entitled to
production bonus in accordance with group incentive scheme, the outline of
which is as follows:
(a) For any production in excess of the standard rate fixed at 16,800 tonnes
per month (of 28 days) a general incentive of Rs.15 per tonne is paid in
aggregate. The total amount payable to each separate group is
determined on the basis of an assumed percentage of such excess
production being contributed by it, namely @ 65% by direct labour, @
15% by inspection staff, @ 12% by maintenance staff and @ 8% by
supervisory staff.
(b) Moreover, if the excess production is more than 20% above the standard,
direct labour also get a special bonus @ Rs.5 per tonne for all production
in excess of 120% of standard.
(c) Inspection staff are penalized @ Rs.20 per tonne for rejection by
customer in excess of 2% of the production.
(d) Maintenance staff are also penalized @ 20 per hour for breakdown.
From the following particulars for a month, work out production bonus earned
by each group:
(a) Actual working days :25
(b) Production : 21,000 tonnes
(c) Rejection by customer : 500 tonnes
(d) Machine breakdown : 40 hours

Solution:

Statement of Production Bonus Earned by each Group

Group Direct Inspectio Maintenanc Supervisor
Labour n Staff e Staff y Staff
General Bonus (Rs.) 58,500 13,500 10,800 7,200
Add: Special Bonus 15,000 -- --- ----
(Rs.)
Less: Penalty (Rs.) --- (1,600) (800) ---
Total 73,500 11,900 10,000 7,200

1. Calculation of General Bonus

Actual Production (25 Days) = 21,000 tonnes
 Labour Control 85

Standard production (25 Days) (16,800 ×25/28) = 15,000 tonnes

Excess Production (21,000 tonnes – 15,000 tonnes)= 6,000 tonnes
General Bonus (6,000 tonnes ×Rs.15) = Rs.90,000
Distribution Amount (Rs.)
Direct Labour (65% of Rs.90,000) 58,500
Inspection Staff (15% of Rs.90,000) 13,500
Maintenance Staff (12% of Rs.90,000) 10,800
Supervisor Staff (8% of Rs.90,000) 7,200
Total 90,000
2. Calculation of Special Bonus
Actual Production = 21,000 tonnes
Standard Production = 15,000 tonnes
120% of standard production (120% of 15,000 tonnes)= 18,000 tonnes
Excess Production over 120% of Standard production (21,000 -18,000)
= 3,000 tonnes
Special Bonus to Direct Labour (3,000 tonnes ×Rs.5)= Rs.15,000
3. Calculation of penalty to inspection staff
Actual rejection = 500 tonnes
Allowed rejection (2% of 21,000 tonnes) = 420 tonnes
Excess Rejection (500 tonnes – 420 tonnes) = 80 tonnes
Penalty to Inspection Staff (80 tonnes ×Rs.20) = Rs.1,600
4. Calculation of Penalty to Maintenance Staff
Machine Breakdown = 40 hours
Penalty to Maintenance Staff (40 hours ×Rs.80) = Rs.800

Q.No. 24:
A skilled worker in XYZ Ltd is paid at guaranteed rate of Rs.30 per hour. The
standard time per unit for a particular product is 4 hours. P, a machineman,
has been paid wages under the Rowan Incentive Plan and he had earned an
effective hourly rate of Rs.37.50 on the manufacture of that particular product.
What could have been his total earnings and effective hourly rate, had he
been put on Halsey Incentive Scheme (50%)?

Solution:
Let T be the total hours actually worked.
Earning under Rowan Incentives Plan
= Time Taken ×Rate per Hour + (Time Saved / Time Allowed) ×Time Taken
×Rate per Hour
Or, 37.50 T = T × Rs.30 + ((4 – T)/ 4) × T × Rs.30
Or, 37.50 T = 30T + (4 – T) × 7.5 T
Or, 37.50 = 30 + (4 – T) × 7.50
Or, 7.50 = (4 – T) × 7.50
Or, 4 – T = 1
Or, T = 3
Hence time taken by the worker is 3 hours.
86 COST ACCOUNTING For CAP II (CA Inter)

Calculation of earning of the worker under Halsey Incentives Scheme (50%)

Total Earning
= Time Taken ×Rate per Hour + ½ ×Time Saved × Rate per Hours
= 3 ×Rs.30 + ½ × 1 × Rs.30
= Rs.90 + Rs.15
= Rs.105
Calculation of effective hourly rate of the worker under Halsey Scheme
Effectively Hourly Rate
= Total Earnings / Total Time Taken
= Rs.105 / 3 Hours
= Rs.35
Q.No. 25: May 1999 ICAI 12 Marks
During audit of account of G Company, your assistant found errors in the
calculation of the wages of factory workers and he wants you to verify his
works.
He has extracted the following information:
(i) The contract provides that the minimum wage for a worker is his base
rate. It is also paid for downtimes i.e. the machine is under repair or the
worker is without work. The standard work week is 40 hours. For
overtime production, workers are paid 150 percent of base rate.
(ii) Straight Piece Work – The worker is paid at the rate of 20 paise per piece.
(iii) Percentage Bonus Plan – Standard quantities of production per hour are
established by the engineering department. The worker’s average hourly
production, determined from his total hours worked and his production, is
divided by the standard quantity of production to determine his efficiency
ratio. The efficiency ratio is then applied to his base rate to determine his
hourly earnings for the period.
(iv) Emerson Efficiency Plan – A minimum wages is paid for production upto
66-2/3% of standard output or efficiency. When the worker production
exceeds 66-2/3% of the standard output, he is paid bonus as per the
following table:
Efficiency level Bonus
Upto 66- 2/3 % Nil
Above 66-2/3% to 79% 10%
80% to 99% 20%
100% to 125% 45%
Your assistance has produced the following schedule pertaining to certain
workers of a weekly payroll:
Workers Wages Total Down Units Standard Base Gross
Incentive plan hours time produced units rate wages
hours as per
books
Rajesh Straight piece 40 5 400 --- 1.80 85
rate
Mohan* Straight piece 46 --- 455 -- 1.80 95
rate
John Straight piece 44 --- 425 --- 1.80 85
rate
 Labour Control 87

Harish Percentage 40 4 250 200 2.20 120

bonus plan
Mahesh Emerson 40 ---- 240 300 2.10 93
Anil Emerson 40 --- 600 500 2.00 126
(40 hours production)
* Total hours of Mohan include 6 overtime hours.
Prepare a schedule showing whether the time above computation of worker’s
wages are correct or not. Give details.

Solution

Statement showing the amount of minimum wages, gross wages and wages to be paid:
Workers Minimum Wages as Gross Wages to be paid
wages (a) per wages as (a) or (b)
incentives (b) per book whichever is higher
(c)
Rajesh Rs.72 Rs.80 Rs.85 Rs.80
Mohan Rs.88.20 Rs.91 Rs.95 Rs.91
John Rs.79.20 Rs.85 Rs.85 Rs.85
Harish Rs.88 Rs.110 Rs.120 Rs.110
Mahesh Rs.84 Rs.100.80 Rs.93 Rs.100.80
Anil Rs.80 Rs.116 Rs.126 Rs.116

Working Note:
(1) Calculation of wages of Rajesh
(a) Minimum wages
= Total Hours ×Base Rate
= 40 hours ×Rs.1.80
= Rs.72
(b) Wages as per Straight Piece Rate
= Units produced ×Rs.0.20 per piece
= 400 units ×Rs.0.20
= Rs.80
(2) Calculation of wages of Mohan
(a) Minimum wages
= (40 Hours ×Rs.1.80) + (6 hours ×Rs.1.80 ×150%)
= Rs.72 + Rs.16.20
= Rs.88.20
(b) Wages as per Straight Piece Rate
= Units produced ×Rs.0.20 per piece
= 455 units ×Rs.0.20
= Rs.91
(3) Calculation of wages of John
(a) Minimum wages
= 44 Hours ×Rs.1.80
= Rs.79.20
88 COST ACCOUNTING For CAP II (CA Inter)

(a) Wages as per Straight Piece Rate

= Units produced ×Rs.0.20 per piece
= 425 units ×Rs.0.20
= Rs.85
(4) Calculation of wages of Harish
(a) Minimum wages
= 40 hours × Rs.2.20
= Rs.88
(b) Wages as per percentage bonus plan
Standard production per hour (200 units /40 hours)= 5 units
Actual production per hour (250 units / 40 hours) = 6.25 units
Efficiency Ratio (6.25 /5) = 125%
Earnings = 40 hours × Rs.2.20 × 125%
= Rs.110

(5) Calculation of wages of Mahesh

(a) Minimum wages
= 40 hours × Rs.2.10
= Rs.84
(b) Wages under Emerson Efficiency Plan
Efficiency Level = (Actual Production/Standard Production) × 100%
= (240 units/ 300 units) × 100%
= 80%
Earnings = Minimum wages + Bonus
= Rs.84 + 20% of Rs.84
= Rs.84 + Rs.16.80
= Rs.100.80
(6) Calculation of wages of Anil
(a) Minimum wages
= Total hours × Basic Rate
= 40 hours × Rs.2
= Rs.80
(b) Wages as per Emerson Efficiency Plan
Efficiency level = (Actual Production/Standard Production) × 100%
= (600 units / 500 units) ×100%
= 120%
Earnings = Minimum Wages + Bonus
= Rs.80 + 45% of Rs.80
= Rs.116
Q.No. 26: November 2000 ICAI 10 Marks
The present output details of a manufacturing department are as follows:
Average output per week 48,000 units from 160 employees
Saleable value of output Rs.6,00,000
Contribution made by output
towards fixed expenses and profit Rs.2,40,000
 Labour Control 89

The Board of Directors plans to introduce more mechanization into the

department at a capital cost of Rs.1,60,000. The effect of this will be to reduce
the number of employees to 120 and increasing the output per individual
employee by 60%. To provide the necessary incentive to achieve the
increased output, the Board intends to offer a 1% increase on the piece work
rate of Re.1 per unit for every 2% increase in average individual output
achieved.
To sell the increased output, it will be necessary to decrease the selling price
by 4%.
Calculate the extra weekly contribution resulting from the proposed change
and evaluate for the Board’s information, the desirability of introducing the
change.

Solution:

Statement showing extra contribution of the proposed change

Particulars Amount (Rs.)
Expected Sales (Units) 57,600
Expected Sales Revenue (57,600 units ×Rs.12) 691,200
Less:
- Variable Cost Excluding wages (57,600 units × Rs.6.50) 374,400
- Wages Cost (57,600 units × Rs.1.30) 74,880
Expected Contribution Margin 241,920
Less: Present Contribution Margin 240,000
Increase in Contribution Margin 1,920
Evaluation:
Since there is a increase in contribution margin the proposed change should
be applied.

Working Note:
1. Calculation of expected sales units
Average present output per worker (48,000 / 160) = 300 units
Expected output per worker (300 × 160%) = 480 units
Total Expected output (480 units × 120 Employees) = 57,600 units
2. Calculation of expected selling price per unit
Present Selling price per unit (Rs.600,000/ 48,000 units) = Rs.12.50
Expected Selling Price per unit (Rs.12.50 × 96%) = Rs.12
3. Calculation of variable cost excluding wages
Present total sales revenue = Rs.600,000
Present total contribution = Rs.240,000
Present total variable cost including wages (Rs.600,000- Rs.240,000)
= Rs.360,000
Present total wages (48,000 units × Rs.1 per unit)= Rs.48,000
Present total variable cost excluding wages (Rs.360,000- Rs.48,000)
= Rs.312,000
90 COST ACCOUNTING For CAP II (CA Inter)

Present variable cost excluding wages per unit (Rs.312,000/48,000 units)

= Rs.6.50

4. Calculation of expected wages cost

Present wages cost per unit = Rs.1
Increase in output = 60%
Increase in wages = 30%
Expected wages cost per unit (Rs.1 × 130%) = Rs.1.30

Q.No. 27:
A worker is paid Rs.100 per month and dearness allowance of Rs.200 p.m.
There is a provident fund @ 8 1/3% and the employer also contribute the
same amount as the employee. The Employees State Insurance Contribution
premium is 1 ½% of wages of which ½% is paid by the employees. It is the
firm’s practice to pay 2 months’ wages as bonus each year.
The number of working days in a year are 300 of 8 hours each. Out of these
the worker is entitled to 15 days leave on full pay. Calculate the wage rate per
hour for costing purposes.

Solution
Wages rate per hour for costing
= Total wages paid/ Normal Productive Hours
= Rs.4,536 / 2280 Hours
= Rs.1.9894

Working Note:
(1) Calculation of total wages paid for a year
Basic Wages (Rs.100 × 12 months)
Rs.1,200
DA (Rs.200 × 12 months) Rs.2,400
Employer’s Contribution to PF (8.33% of Basic and DA) Rs.300
Employer’s contribution to ESI (1% of Basic and DA) Rs.36
Bonus of 2 months wages (2/12 of Basic and DA) Rs.600
Total Rs.4,536
(2) Calculation of Normal Productive Hours per year
Working days in a year 360 days
Less: Leave 15 days
285 days
Normal productive hours (285 days × 8 hours) 2,280 Hours

Q.No. 28:
Calculate the earnings of A and B from the following particulars for a month
and allocate the labour cost to each job X, Y and Z:
A B
(i) Basic wages Rs.100 160
 Labour Control 91

(ii) Dearness allowance (on basic wages) 50% 50%

(iii) Contribution to provident fund (on basic wages) 8% 8%
(iv) Contribution to employees state insurance (on basic wages)2% 2%
(v) Overtime 10 hours

The normal working hours for the month are 200. Overtime is paid at double
the total of normal wages and dearness allowance. Employer’s contribution to
State Insurance and Provident Fund are at equal rates and employees’
contribution. The two workers were employed on the jobs X, Y and Z in the
following proportions:
Jobs
X Y Z
Worker A 40% 30% 30%
Worker B 50% 20% 30%
Overtime was done on job Y.

Solution
(1) Statement showing earnings of worker A and B
Workers A B
Basic wages Rs.100 Rs.160
DA (50% of Basic) Rs.50 Rs.80
Employer’s Contribution to:
- PF (8% of Basic) Rs.8 Rs.12.80
- ESI (2% of Basic) Rs.2 Rs.3.20
Overtime Wages Rs.15 ---
Total Rs.175 Rs.256
(2) Statement showing allocation of wages to the jobs
Jobs Total X Y Z
Worker A:
- Overtime Rs.15 --- Rs.15 ---
- Wages excluding overtime (40 : Rs.16 Rs.64 Rs.48 Rs.48
30 :30) 0
Worker B:
- Wages (50 : 20 : 30) Rs.25 Rs.128 Rs.51.20 Rs.76.80
6
Total Rs.43 Rs.192 Rs.114.2 Rs.124.8
1 0 0

Working Note:
(1) Calculation of overtime of worker A
Wages per hour = (Basic + DA)/ Normal hours
= (Rs.100 + Rs.50)/ 200
= Rs.0.75
Overtime Wages = 10 hours × Rs.0.75 × 2
= Rs.15
92 COST ACCOUNTING For CAP II (CA Inter)

Q.No. 29: December 2005 ICAN 6 Marks

A worker takes 6 hours to complete a job under a scheme of payment by
results. The standard time allowed for the job is 9 hours. His wages rate is
Rs.1.50 per hour. Material cost of the job is Rs.16 and the overhead are
recovered at 150% of the total direct wages. Calculate the factory cost of job
under:
i. Rowan; and
ii. Halsey Systems of Incentive payments.
(Ans. Factory cost under Rowan- Rs.46 and under Halsey- Rs.44.13)
Q.No. 30: June 2002 ICAN 8 Marks
A company is in the process of introduction of wage incentive system. It has
taken up the study of the output of the three workers A, B and C. Each
worker produces an identical product, but the output varies. They respectively
produce 44, 36 and 24 units in a shift of 8 hours. The daily wages are
guaranteed at Rs.5 per hour and the piece rate is based on a standard output
of 4 units per hour.

The company is considering the wage calculations under (i) Time rate system
(ii) Piece rate system (iii) Halsey system and (iv) Rowan system.

Calculate under each of the aforesaid four systems for each worker:
(i) The total earnings per shift of 8 hours.
(ii) The effective earnings per hour worked.
(iii) The wage cost per unit of output.

(Ans. Method Time rate Piece rate Halsey Rowan

Earnings per shift for A 40.00 55.00 47.50 50.91
Earnings per shift for B 40.00 45.00 42.50 44.44
Earnings per shift for C 40.00 30.00 40.00 40.00
Effective earning per Hr of A 5.00 6.875 5.9375 6.36
Effective earning per Hr of B 5.00 5.625 5.3125 5.56
Effective earning per Hour of C 5.00 3.75 5.00 5.00
Wages cost per unit of A 0.91 1.25 1.08 1.16
Wages cost per unit of B 1.11 1.25 1.18 1.23
Wages cost per unit of C 1.67 1.25 1.67 1.67)
Q.No. 31: June 2004 ICAN 8 Marks
A factory has recently replaced an old machine by a modern machine.

The technical board of the factory endorsed the recommendation made by

the technical committee for the curtailment of the previously set up time of
0.50 hour by 20% for realizing 4 units of output.

The current wage rate per hour is Rs.40. A worker of the factory produced
360 units working for 6 hours a day for 5 days after the regulation of the
revised hours.

Required:
 Labour Control 93

Earning of the worker based on:

i. Straight piece rate system.
ii.. Differential piece rate system ranging lowest of 83%.
iii. Halsey premium plan.
iv. Rowan premium plan.
(Ans. (i.) Rs.1,440 (ii) Rs.1,800 (iii) Rs.1,320 and (iv) Rs.1,400)
Q.No. 32: November 2003 ICAN 10 Marks
The scenarios of the labour force of an industry are as follows:
Labour force of beginning - 195
Labour force of ending – 205

5 workers were discharged on disciplinary ground. The registrations

submitted by 10 workers were accepted.

Annual expenditure associated with human resource are:

i. Medical Expenses Rs.40,000
ii. Recruitment Expenses Rs.20,000
iii. Loss of output on account of replacement Rs.30,000
iii. Training Cost for the entire manpower Rs.50,000

Required:
a. Labour turnover ratio
b. Labour turnover ratio on account of unavoidable circumstances.
c. Cost per labour turnover.
d. Preventive cost per labour turnover.
e. Replacement cost per labour turnover.
(Ans. (a) 7.5%. (b) 2.5% (c) Rs.700 (d) Rs.450 and (e) Rs.250)
Q.No. 33: June 2003 ICAN 5 Marks
The details of the staff force of a firm are stated below:
i. Staff force in the beginning of the last year was 125.
ii. Staff force at the end of the last year was 175.
15 workers discharged on disciplinary causes.
20 workers left their job because of dispute with the management of the firm.
The annual expenses associated with the staff force during the period were:
i. Human Resource development Rs.90,000.
ii. Loss of output because of delay in hiring new staff Rs.60,000.
iii. Training expenses for the whole staff force Rs.30,000.
iv. Cost of recruitment Rs.45,000.

Required:
1. Labour turnover on account of unavoidable cause.
2. Labour turnover cost.
3. Preventive labour turnover cost.
(Ans. (1) 10% (2) Rs.1,500 and (c) Rs.800)
Q.No. 34: June 2003 ICAN 5 Marks
A worker of a workshop realized 2,500 units by working 100 hours. The
negotiated wage rate per hour was Rs.40. The standard time fixed was 0.25
94 COST ACCOUNTING For CAP II (CA Inter)

hours for 6 units. The top executive of the workshop has endorsed the
recommendation made by the Technical Team for Quality Control for the
addition of 20% on the pre-fixed standard time to improve quality of the
products before issuing work order for that production lot.

Required:
Ascertain earning of the worker by using:
1. Straight Piece Rate System.
2. Rowan Premium Plan.
(Ans. (1) Rs.5,000 and (2) Rs.4,800)

Q.No. 35: November 2004 ICAN

In an engineering concern, the employees are paid incentive bonus in
addition to their normal wages at hourly rates. Incentive bonus is calculated
in proportion of time allowed, of the time saved. The following details are
made available in respect of employees X, Y and Z for a particular week:
X Y Z
Normal Wages (Rs. Per Hour) 4.00 5.00 6.00
Completed units of production 6000 3000 4800
Time allowed (per 100 units) 0.8 Hr. 1.5 Hr. 1 Hr.
Actual time taken (Hours) 42 40 48

You are required to work out for each employee:

i. The amount of bonus earned.
ii. The total amount of wages received.
iii. The total wages cost per 100 units of output.
(Ans. Bonus earned by X Rs.21, Y Rs.22.22 and Z NlL; Wages received by X
Rs.189, Y Rs.222.22 and Z Rs.288, Wages cost per 100 units of output of X
Rs.3.15, Y Rs.7.41 and Z Rs.6.00)
Q.No. 36: June 2005 ICAN 8 Marks
A company employs two workmen, Harish and Gopal who produce same
product. Both Harish and Gopal have same normal wages. Harish is paid
bonus according to Rowan System, while Gopal is paid bonus according to
the Halsey System. The time allowed to make the product is 200 hours.
Harish takes 120 hours while Gopal takes 160 hours to complete the products.
The factory overhead rate is Rs.10 per hour. The cost of material for both
Harish and Gopal is same. The factory cost of the product for Harish is
Rs.14,560 and Gopal is Rs.15,200.

You are required to:

i. Find the normal rate of wages.
ii. Find the cost of materials.
iii.Prepare a statement comparing the factory cost of the products as made
by the two workmen.
(Ans. Direct wages for Harish Rs.14,560 and Gopal Rs.15,200)
 Labour Control 95

Q.No. 37: May 2001 ICAN 8 Marks

Calculate the earnings of two workers A and B for every 200 units of output
from the following information:
Standard conversion cost of product Rs.60 per unit.
Overhead 150% of wages cost
Wage rate Worker A : Rs.10 per hour
Worker B : Rs.12 per hour
Time taken to complete 200 units by worker A is 400 hours and by worker b is
380 hours.
There is an incentives system based on the reduction of labour and overhead
cost in the following scale:
Reduction upto Earns a Bonus
15% 10% of wages
20% 20% of wages
25% 25% of wages
(Ans. total earnings of A Rs.4,800 and of B Rs.5,016)
Q.No. 38: May 1996 ICAI 7 Marks
An article passes through five hand operations as follows:
Operation No. Time per article Grade of worker Wage rate per hour
1 15 minutes A Rs.0.65
2 25 minutes B Rs.0.50
3 10 minutes C Rs.0.40
4 30 minutes D Rs.0.35
5 20 minutes E Rs.0.30

The factory works 40 hours a week and the production target is 600 dozens
per week. Prepare a statement showing for each operation and in total the
number of operators required, the labour cost per dozen and the total labour
cost per week to produce the total targeted units.
Q.No. 39: November 1997 ICAI 10 Marks
A work can be executed either through workmen A or B. A takes 32 hours to
complete the job while B finishes it in 30 hours. The standard time to finish
the job is 40 hours.
The hourly wage rate is same for both the workers. In addition workman A is
entitled to receive bonus according to Halsey plan (50% sharing) while B is
paid bonus as per Rowan plan. The works overheads are absorbed on the
job at Rs.7.50 per labour hour worked. The factory cost of the job comes to
Rs.2,600 irrespective of the workman engaged.

Find out the hourly wage rate and cost of raw materials input. Also show cost
against each element of cost included in factory cost.
Q.No. 40: 1998 ICAI 8 Marks
The Management of Sunrise Limited wants to have an idea of the profit
lost/foregone as a result of labour turnover last year.
Last year sales accounted to Rs.66,00,000 and the P/V ratio was 20%. The
total number of actual hours worked by the direct labour force was 3.45 lakhs.
As a result of the delays by the Personnel Department in filling vacancies due
96 COST ACCOUNTING For CAP II (CA Inter)

to labour turnover, 75,000 potential productive labour hours were lost. The
actual direct labour hours included 30,000 hours attributable to training new
recruits, out of which half of the hours were unproductive. The costs incurred
consequent on labour turnover revealed on analysis the following:

Rs.
Settlement cost due to leaving 27,420
Recruitment costs 18,725
Selection costs 12,750
Training costs 16,105

Assuming that the potential production lost due to labour turnover could have
been sold at prevailing prices, ascertain the profit foregone/lost last year on
account of labour turnover.
Q.No. 41: May 1998 ICAI 8 Marks
Calculate the earnings of workers A, B and C under Straight Piece Rate
System and Merrick’s Multiple Piece Rate System from the following
particulars:

Normal Rate per Hour Rs.5.40

Standard Time Per Unit 1 Minute

Output per day is as follows:

Worker A 390 Units
Worker B 450 Units
Worker C 600 Units

Working hours per day are 8.

Q.No. 42: November 1998 ICAI 6 Marks
Calculate the earnings of a worker under (i) Halsey Plan and (ii) Rowan Plan
from the following particulars:
1. Hourly rate of wages guaranteed 50 paise per hour.
2. Standard time for producing one dozen articles -3 hours.
3. Actual time taken by the worker to produce 20 dozen articles – 48 hours.
Q.No. 43: May 2001 ICAI 4 Marks
From the following information, calculate labour turnover rate and labour flux
rate:
No. of workers as on 01.01.2000 7,600
No. of workers as on 31.12.2000 8,400
During the year 80 workers left while 320 workers were discharged. 1,500
workers were recruited during the year of these, 300 workers were recruited
because of exits and the rest were recruited in accordance with expansion
plans.
Q.No. 44: May 2002 ICAI 8 Marks
The finishing shop of a company employs 60 direct workers. Each worker is
paid Rs.400 as wages per week of 40 hours. When necessary, overtime is
 Labour Control 97

worked upto a maximum of 15 hours per week per worker at time rate plus
one half premiums. The current output on an average is 6 units per man hour
which may be regarded as standard output. If bonus scheme is introduced, it
is expected that the output will increase to 8 units per man hour. The workers
will, if necessary, continue to work overtime upto the specified limit although
no premium on incentives will be paid.

The company is considering introduction of either Halsey Scheme of Rowan

Scheme of wages incentives system. The budgeted weekly output is 19,200
units. The selling price is Rs.11 per unit and the direct material cost is Rs.8
per unit. The variable overheads amount to Rs.0.50 per direct labour hour
and the fixed overhead is Rs.9,000 per week.

Prepare a statement to show the effect on the company’s weekly profit of the
proposal to introduce (i) Halsey Scheme, and (ii) Rowan Scheme.
Q.No. 45: November 2002 ICAI 9 Marks
A company is undecided as to what kind of wage scheme should be
introduced. The following particulars have been compiled in respect of three
years, which are under consideration of the management:
Workers
A B C
Actual hours worked in a week 38 40 34
Hourly rate of wages Rs.6 Rs.5
Rs.7.20
Production in units:
Product P 21 --- 60
Product Q 36 --- 135
Product R 46 25 ---
Standard time allowed per unit of each product is:
P Q R
Minutes 12 18 30
For the purpose of piece rate, each minute is valued at Rs.0.10.

You required to calculate the wages of each worker under:

i. Guaranteed hourly rate basis.
ii. Piece work earning basis, but guaranteed at 75% of basic pay
(guaranteed hourly rate) if his workings are less than 50% of basic pay.
iii. Premium bonus basis where the worker receives bonus based on Rowan
Scheme.
Q.No. 46: May 2004 ICAI 8 Marks

ZED Limited is working by employing 50 skilled workers. It is considered the

introduction of incentives scheme- either Halsey Scheme (with 50% bonus) or
Rowan scheme – of wage payment for increasing the labour productivity to
cope up increasing demand for the product by 40%. It is believed that
proposed incentives scheme could bring about an average 20% increase
98 COST ACCOUNTING For CAP II (CA Inter)

over the present earnings of the workers; if could act as sufficient incentive
for them to produce more.

Because of the assurance, the increase in productivity has been observed as

revealed by the figures for the month of April 2004:
Hourly rate of wages (Guaranteed) Rs.30
Average time for producing one unit by one worker at the
previous performance (this may be taken as time allowed) 1.975 hours
Number of working days in the month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units

Required:
i. Calculate the effective rate of earnings under the Halsey Scheme and
Rowan Scheme.
ii. Calculate the savings to the ZED Limited in terms of direct labour cost
per piece.
iii. Advise ZED Limited about the selection of the scheme to fulfill his
assurance.
Q.No. 47:
Two workmen, Vishnu and Shiva, produce the same product using the same
material. Their normal wage rate is also the same. Vishnu is paid bonus
according to the Rowan System, while Shiva is paid bonus according to the
Halsey System. The time allowed to make the product is 100 hours. Vishnu
takes 60 hours while Shiva takes 80 hours to complete the product. The
factory overhead rate is Rs.10 per man-hour actually worked. The factory
costs for the product for Vishnu is Rs.7,280 and for Shiva Rs.7,600.

You are required:

i. to find the normal rate of wages;
ii. to find the cost of materials;
iii.to prepare a statement comparing the factory cost of the products as made
by the two workmen.

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