Chapter 3 Employee Cost & Direct Expenses Solution

Chapter 2
Solution 2:
Particulars Amount (₹)
Basic {₹ 200 × 25 days}
5,000
Dearness Allowance {₹ 2.50 × 600 points (i.e. 700 – 100)} 1,500
Leave Salary
650
{10% on (₹ 5,000 + ₹ 1500)}
Employer’s Contribution to PF, ESI and related expenditure
1,430
{20% on (5,000 + 1,500 + 650}
Pro rate expenditure on amenities to Labour 600
Total wage cost per month, i.e. for 200 hours 9,180
Hence, cost per day of 8 hours (9,180 × 8/200) 367.20

Solution 4:
(i) Effective working days in a year - 300
Less: Leave days on full pay - 20
Effective working days - 280 days
Total effective working hours (280 days × 8 hours) - 2,240

(ii) Total wages paid in a year (₹)

Basic pay - 1,20,000
D.A. 36,000
Fringe benefits - 12,000
Total = 1,68,000

(iii) Hourly rate : ₹ 1,68,000/2,240 hours ₹ 75.00

Solution 7:
Statement showing computation of effective hourly cost of employee ‘X’
(i) Earning of employee ‘X’:
Per month Per annum
₹ ₹
Basic pay 1,000 12,000
Dearness Allowance 200 2,400
Bonus 240 2,880
Employee’s contribution to provident
120 1,440
fund
Other allowance 250 3,000
1,810 21,720
(ii) Effective working hours:
Annual working hours 2,400
Less: Normal idle time 400
Effective working hours 2,000
Effective hourly cost of ‘X’: ₹ 21,720/2,000

Solution 9:
Statement showing Earnings of Workers A and B
A (₹) B (₹)
Basic wages 10,000 16,000
Dearness Allowance (50% of Basic Wages) 5,000 8,000
Overtime wages (Refer to Working Note 1) 1,500 --
Gross wages earned 16,500 24,000
Less: Contribution to Provident fund (800) (1,280)
Less: Contribution to ESI (200) (320)
Net wages earned 15,500 22,400

CA Nitin Guru | [Link] 2.1

 Chapter 3 Employee Cost & Direct Expenses Solution

Statement of Employee Cost:

A (₹) B (₹)
Gross Wages (excluding overtime) 15,000 24,000
Add: Employer’s contribution to PF 800 1,280
Add: Employer’s contribution to ESI 200 320
Gross wages earned 16,000 25,600
Normal working hours 200 200
Ordinary wages rate per hour 80 128

Statement Showing Allocation of Wages to Jobs

Jobs
Total Wages (₹) X (₹) Y (₹) Z (₹)
Worker A:
- Ordinary Wages (4: 3 : 3) 16,000 6,400 4,800 4,800
- Overtime 1,500 -- 1,500 --
Worker B:
- Ordinary Wages (5 : 2 : 3) 25,600 12,800 5,120 7,680
43,100 19,200 11,420 12,480

Normal Wages are considered as basic wages = 2×(Basic wage +DA)×10 hours =150 × 10 hours = ₹1,500
200
Solution 11.
Basic wage rate : ₹ 100 per hour
Overtime wage rate before and after working hours : ₹ 100 × 175%
= ₹ 175 per hour
Overtime wage rate for Sundays and holidays : ₹ 100 × 225%
= ₹ 225 per hour
Computation of average inflated wage rate (including overtime premium):

Particulars (₹)
Annual wages for the previous year for normal time (1,00,000 hrs. × ₹100) 1,00,00,000
Wages for overtime before and after working hours (20,000 hrs. × ₹175) 35,00,000
Wages for overtime on Sundays and holidays (5,000 hrs. × ₹225) 11,25,000
Total wages for 1,25,000 hrs. 1,46,25,000

Average inflated wage rate = (₹1, 46,25,000/ 1,25,000 hours) = ₹117

(a)Where overtime is worked regularly as a policy due to workers’ shortage:

The overtime premium is treated as a part of employee cost and job is charged at an inflated wage rate.
Hence, employee cost chargeable to job Z = Total hours × Inflated wage rate= 1,125 hrs. × ₹ 117 = ₹ 1,31,625

(b)Where overtime is worked irregularly to meet the requirements of production:

Basic wage rate is charged to the job and overtime premium is charged to factory overheads as under:
Employee cost chargeable to Job Z: 1,125 hours @ ₹100 per hour = ₹ 1,12,500
Factory overhead: {100 hrs. × ₹ (175 – 100)} + {25 hrs. × ₹ (225 – 100)} = {₹7,500 + ₹3,125} = ₹10,625

(C) Where overtime is worked at the request of the customer, overtime premium is also charged to the job as
under: (₹)
Job Z Employee cost 1,125 hrs. @ ₹ 100 =1,12,500
Overtime premium 100 hrs. @ ₹ (175 – 100) =7,500
25 hrs. @ ₹ (225 – 100) = 3,125
Total 1,23,125

CA Nitin Guru | [Link] 2.2

 Chapter 3 Employee Cost & Direct Expenses Solution

Solution 13.
(1) If labour has shortage = Thus overtime is normal in nature.
Labour effective rate = (Normal wage + Overtime wage) / (Normal hours + Overtime hours)
2,20,000 𝑥 6 + 20,000 𝑥 8 + 10,000 𝑥 12 16,00,000
= 2,20,000 + 20,000 + 10,000
= 2,50,000 ℎ𝑜𝑢𝑟𝑠 = ₹ 6.4/hr

Job cost
Normal = 5,000 x 6.4 = 32,000
Evening = 600 x 6.4 = 3,840
Weekend = 50 x 6.4 = 320
Total labour cost = ₹ 36,160

(2) If overtime is abnormal in nature

Customer job will bear Costing P&L Debit
Normal = 5,000 x 6 -
Evening = 600 x 6 Evening = 600 x 2* = 1200
Weekend = 50 x 6 Weekend = 50 x 6* = 150
₹ 33,750 ₹ 1,350
₹ 33,900 ₹ 1,300

(3) Overtime at request of customer

Normal time wage = 5,000 x 6 = 30,000
Evening time wage = 600 x 8* = 4,800
Weekend time wage = 25 x 12* = 300
Total labour cost = 35,100

Solution 15:
Labour Turnover Rate
It comprises computation of labour turnover by using following methods.

𝑵𝒐.𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔 𝒍𝒆𝒇𝒕+𝑵𝒐.𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔 𝒅𝒊𝒔𝒄𝒉𝒂𝒓𝒈𝒆𝒅 (𝟖𝟎+𝟑𝟐𝟎) 400

(i) Separation Method = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔
= (𝟕𝟔𝟎𝟎+𝟖𝟒𝟎𝟎)÷𝟐
× 100 = 8000
× 100 =5%

𝑵𝒐.𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔 𝒓𝒆𝒑𝒍𝒂𝒄𝒆𝒅 300

(ii) Replacement Method:= 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔
× 100 = 8000
× 100 = 3.75%

𝑵𝒐.𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔 𝒏𝒆𝒘𝒍𝒚 𝒓𝒆𝒄𝒓𝒖𝒊𝒕𝒆𝒅 1200

(iii) New Recruitment: = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔
× 100 = 8000
× 100 = 15%

𝑵𝒐.𝒐𝒇 𝒔𝒆𝒑𝒂𝒓𝒂𝒕𝒊𝒐𝒏+𝑵𝒐.𝒐𝒇 𝒂𝒄𝒄𝒆𝒔𝒔𝒊𝒐𝒏𝒔𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔 (400 + 1500)

Flux Method: = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒘𝒐𝒓𝒌𝒆𝒓𝒔
= (𝟕,𝟔𝟎𝟎+𝟖,𝟒𝟎𝟎)÷𝟐
× 100
1900
= 8000
× 100 = 23.75%

Solution 18:
Flux method = 14%
Separation method = 6%
Replacement method = 8%
Flux = Sep + Replacement 14% = 6% + 8%
So, no new joining. Replacements = 36

Separations = S
Replacements = R
Average = A
𝑅
Replacement method = 𝐴
x 100
36
8% = 𝐴
36 x 100%
A = 450

CA Nitin Guru | [Link] 2.3

 Chapter 3 Employee Cost & Direct Expenses Solution

𝑆
Number separation method = 𝐴
x 100
𝑆
6% = 450
x 100%
Number of separations = 27

(i) New recruited & joined = Accessions = R + NJ = 36 + 0 = 36

(ii) Left & discharged = S = 27

Solution 25:
(i) Computation of wages of each worker under guaranteed hourly rate basis
Worker Actual Hours worked (Hours) Hourly wage rate (₹) Wages (₹)
M 380 90 34,200
N 100 100 10,000
O 540 110 59,400

(ii) Computation of wages of each worker under piece work earning basis
Product Piece rate Worker-M Worker-N Worker-O
per unit (₹)
Units Wages Units Wages Units Wages
(₹) (₹) (₹)
A 22.50 210 4,725 - - 600 13,500
B 30.00 360 10,800 - - 1,350 40,500
C 45.00 460 20,700 250 11,250 - -
Total 36,225 11,250 54,000
Since each worker’s earnings are more than 50% of basic pay. Therefore, worker-M, N and O will be paid the
wages as computed i.e. ₹ 36,225, ₹ 11,250 and ₹ 54,000 respectively.
Working Notes:
1. Piece rate per unit
Product Standard time per Piece rate each Piece rate per unit
unit (in minutes) minute (₹) (₹)
A 15 1.5 22.50
B 20 1.5 30.00
C 30 1.5 45.00

Solution 29:
𝑹𝒔.𝟖𝟏
Wage Rate/ Hour = 𝟒𝟓 𝑯𝒐𝒖𝒓𝒔
= ₹ 1.80 per hour

Actual Production per week = 200 units

18
Time allowed per unit = 18 minutes = 60
= 0.30 Hours

Time allowed for 200 units = 200 units × 0.30 Hours = 60 Hours

Actual Hours Worked = 45 Hours

Time Saved = 60=45 = = 15 Hours

Wages Under Halsey Scheme = Normal Wages + Bonus

= (Hours Worked × Time Rate) + (50% × Time Saved × Time Rate)
= (45 × 1.80) + (50% × 15 × 1.80) = ₹ 94.50

𝑻𝒐𝒕𝒂𝒍 𝑾𝒂𝒈𝒆𝒔 𝟗𝟒.𝟓𝟎

Earnings/Hour of Workers = 𝑨𝒄𝒕𝒖𝒂𝒍 𝑯𝒐𝒖𝒓𝒔 𝑾𝒐𝒓𝒌𝒆𝒅
= 45
= ₹ 2.10 per hour

CA Nitin Guru | [Link] 2.4

 Chapter 3 Employee Cost & Direct Expenses Solution

Rowan Scheme = Normal wages + Bonus

𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
= (Time Taken × Time Rate) + (Time saved × 𝑻𝒊𝒎𝒆 𝒂𝒍𝒍𝒐𝒘𝒆𝒅
x Time Rate)

= (45 × 1.80) + (15 × 45/ 60 × 1.80) = ₹ 101.25

𝑻𝒐𝒕𝒂𝒍 𝑾𝒂𝒈𝒆𝒔 𝟏𝟎𝟏.𝟐𝟓

Earnings of worker per hour = 𝑨𝒄𝒕𝒖𝒂𝒍 𝑯𝒐𝒖𝒓𝒔 𝑾𝒐𝒓𝒌𝒆𝒅
= 𝟒𝟓
= ₹ 2.25 per hour

Solution 32:
Let x = Time taken to complete the job
Time saved = Time allowed – Time taken
= (50 – x) hours

𝑻𝒊𝒎𝒆 𝒔𝒂𝒗𝒆𝒅 𝟓𝟎−𝒙

Bonus under rowan premium plan = 𝑻𝒊𝒎𝒆 𝒂𝒍𝒍𝒐𝒘𝒆𝒅
× Actual hours × rate = 𝟓𝟎
× (x × ₹ 9)
The effective hourly wages rate is ₹ 10.80
Hence Total earning = x × 10.80
𝟓𝟎−𝒙
Total earning of X under Rowan Premium plan = x × 9.0 + ( 𝟓𝟎 ) × (x × 9) = 10.80
𝟒𝟓𝟎+𝟒𝟓𝟎−𝟗𝒙
= 𝟓𝟎
= 10.80
= 900 – 9x = 540
𝟑𝟔𝟎
x= 𝟗
= 40 hrs. Time taken by x
Time saved = 50-40 = 10 hrs.
Under Halsey Premium Plan 50% bonus to Y
Bonus will be 50% × 10 × 9 = ₹ 45
Total earning of y = Wages + Bonus
= 40 × ₹ 9 + 45 = ₹ 360 + 45 = ₹ 405
𝑻𝒐𝒕𝒂𝒍 𝑬𝒂𝒓𝒏𝒊𝒏𝒈
Effective hourly rate of wage = 𝑨𝒄𝒕𝒖𝒂𝒍 𝑯𝒐𝒖𝒓𝒔 = = 405/40 = ₹ 10.125

Solution 33.
Time allowed = TA = 90 hours
Let - Time taken = TT = x hours
Time Saved = TS = (90-x) hours
Wage rate = WR = ₹ 50/hour
Rowan Wages = (TT x WR) + TT/TA (TS x WR)
Effective Wage Rate = Total Wage / Total time taken
𝑇𝑇
(𝑇𝑇 𝑥 𝑊𝑅) + (𝑊𝑅 𝑥 𝑇𝑆)
60 = 𝑇𝑇
𝑇𝐴

𝑇𝑆 𝑥 𝑊𝑅
𝑇𝑇 (𝑊𝑅 + )
60 = 𝑇𝑇
𝑇𝐴

(90 – 𝑥)
60 = 50 + 90 50
(90 – 𝑥) 𝑥 5
60-50 = 9
9
10 x 5
= (90 – x)
18 = 90 – x
x = 90 – 18
x = 72 hours
Under Halsey 40% Premium Plan
Time allowed = TA = 90 hours

CA Nitin Guru | [Link] 2.5

 Chapter 3 Employee Cost & Direct Expenses Solution

(-) Time taken = TT = 72 hours

Time Saved = TS = 18 hours

Halsey Wages = (TT x WR) + 40% (TS x WR)

= (72 x 50) + 40/100 (18 x 50)
= ₹ 3,960
Effective wage rate = ₹ 3,960/72 hours = ₹ 55 per hour

Solution 44.
Working Notes:
1. Actual time taken to produce 1,250 pieces
= No. of working days in the month × No. of working hours per day of each worker × No. of workers
= 25 days × 8 hrs. × 10 workers = 2,000 hours

2. Total time wages of 10 workers per month:

= No. of working days in the month × No. of working hours per day of each worker × Hourly rate of wages ×
No. of workers= 25 days × 8 hrs. × ₹40 × 10 workers = ₹80,000

3. Time saved per month:

Time allowed per piece to a worker 2 hours
No. of units produced during the month by 10 workers 1,250
pieces Total time allowed to produce 1,250 pieces (1,250 × 2 hours) 2,500 hours
Actual time taken to produce 1,250 pieces 2,000 hours
Time saved (2,500 hours – 2,000 hours) 500 hours

4. Bonus under Halsey scheme to be paid to 10 workers: Bonus = (50% of time saved) × hourly rate of wages
= 50/100 × 500 hours × ₹40 = ₹10,000
Total wages to be paid to 10 workers are (₹80,000 + ₹10,000) ₹90,000, if Mr. A considers the introduction of
Halsey Incentive Scheme to increase the employee productivity.

5. Bonus under Rowan Scheme to be paid to 10 workers:

Bonus = (Time taken/Time allowed) × Time saved × hourly rate
= (2,000 hours/2,500 hours) × 500 hours × ₹ 40 = ₹16,000
Total wages to be paid to 10 workers are (₹80,000 + ₹16,000)
₹ 96,000, if Mr. A considers the introduction of Rowan Incentive Scheme to increase the Employee productivity.

(i) (a) Effective hourly rate of earnings under Halsey scheme: (Refer to Working Notes 1, 2, 3 and 4)
= (Total time wages of 10 workers+Total bonus under Halsey scheme)/Total hours worked
= (₹ 80,000 + ₹ 10,000) / 2,000 hours
= ₹45

(b) Effective hourly rate of earnings under Rowan scheme: (Refer to Working Notes 1, 2, 3 and 5)
(Total time wages of 10 workers + Total bonus under Rowan scheme) / Total hours worked
= ( ₹ 80,000+₹16,000) / 2,000 hours
= ₹48

(ii) (a) Saving in terms of direct Employee cost per piece under Halsey scheme: (Refer to Working Note 4)
Employee cost per piece (under time wage scheme)
= 2hours × ₹40 = ₹80.
Employee cost per piece (under Halsey scheme)
= Total wages paid under the scheme /Total number of units produced =
= ₹ 90,000 / 1250 = ₹72
= Saving per piece: (₹80 – ₹72) = ₹8

(b) Saving in terms of direct Employee cost per piece under Rowan Scheme: (Refer to Working Note 5)
Employee cost per piece under Rowan scheme
= ₹96,000/1,250 units = ₹76.80
Saving per piece = ₹80 – ₹76.80 = ₹3.20

CA Nitin Guru | [Link] 2.6

 Chapter 3 Employee Cost & Direct Expenses Solution

Solution 43.
Let wage rate be ₹ y per hour
Let material cost be ₹ x per unit
Halsey Rowan
Time allowed = 40 hours Time allowed = 40 hours
(-) Time taken = 32 hours (-) Time taken = 30 hours
Time saved = 8 hours Time saved = 10 hours
Wages = (TT x WR) + 50% (TS x WR) Wages = (TT x WR) + TT/TA (TS x WR)
= 32 x Y + 50% (8 x Y) = 30 x Y + 30/40 (10 x Y)
= 36y = 37.5y

Cost statement
A B
Raw materials ₹x ₹x
Wages ₹ 36 y ₹ 37.5 y
Overhead ₹ 240 ₹ 225
Factory cost ₹ 2600 ₹ 2600

x + 36y + 240 = 2,600, x + 37.5y + 225 = 2,600

x + 36y = 2,360 …(i), x + 37.5y = 2,375 …(ii)
(ii) – (i)
x + 37.5y = 2,375
x + 36y = 2,360
- - -
1.5y = 15
y = 15 = 10
1.5
So, labour wage hour rate = ₹ 10 per hour x + 36 x 10 = 2,360
x = ₹ 2,000
So material cost per unit = ₹ 2,000 Hourly wage rate = ₹ 10 per hour
Cost of raw material input = ₹ 2,000 per unit

Cost sheet
Particulars For Worker A For Worker B
Raw materials ₹ 2,000 ₹ 2,000
Labour Cost 36 x 10 = ₹ 360 ₹ 37.5 x 10 = ₹ 375
Overhead ₹ 240 ₹ 225
Factory Cost ₹ 2,600 ₹ 2,600

Solution 53.

Solution 54.
1. Halsey Plan
Time Allowed = 120 *(30/60) = 60 hours
Time Taken = - 45 hours
Time saved = 15 hours

Halsey Wages = 45 *8 + 50%15*8 = 420

Normal piece rate system = 120 * 4 = 480
Different piece rate
In the question production is 120 which is more than 100, so workers is efficient.
So , Piece rate applicable = 120% * 4 = 4.8
Wages = 120 * 4.8 = 576

CA Nitin Guru | [Link] 2.7

 Chapter 3 Employee Cost & Direct Expenses Solution

Solution 55.
(i) Rowan Plan : Normal time wage = 15 hours @ ₹ 5= 75
Add: Bonus = Time saved /Time allowed × (Time taken × Time rate) = (5/20) × (15 × 5) = 18.75
= 93.75

(ii) Halsey Plan: Normal time wage = 15 hours @ ₹ 5 = 75

Add: Bonus = 50% of (Time saved x Time rate) = 50% of (5x5) = 12.5
= 87.5

Statement of Comparative Factory cost of work

Rowan Plan (₹) Halsey Plan (₹)
Materials 50 50
Direct wages 93.75 87.5
Prime cost 143.75 137.5
Factory Overhead (100% of Direct wages) 93.75 87.5
Factory cost 237.5 225

Solution 56.
Employee turnover rate using:
(i) Separation Method:
= (No. of workers left + No. of workers discharged/ Average number of workers) × 100
=(40 + 120)/[(3,600 + 3,790) / 2] × 100 = (160/3,695) × 100 = 4.33%

(ii) Replacement Method:

= (No. of workers replaced/ Average number of workers) × 100 = (150 / 3,695) × 100 = 4.06%

(iii) New Recruitment Method:

= (No. of workers newly recruited/ Average number of worker’s) × 100
= [(No. Recruitments - No. of Replacements)/ Average number of worker’s] × 100
= [(350 – 150) / 3,695] × 100 = (200 / 3,695) × 100 = 5.41%

(iv) Flux Method:

= [(No. of separations + No. of accessions)/ Average number of worker’s] × 100
= [(160 + 350)]/[ (3,600 + 3,790) / 2] × 100 = (510/3,695) × 100 = 13.80%

Solution 57:
Employee turnover rate using:
(i) Separation Method:
= (No. of workers left + No. of workers discharged) / Average number of workers × 100
=(40+160) /(3,800+4,200) ÷ 2 ×100= (200 / 4,000 )×100= 5%

(ii) Replacement Method:

= No. of workers replaced / Average number of workers ) × 100 = ( 150 / 4000 ) × 100 = 3.75%

(iii) New Recruitment Method:

= No. of workers newly recruited /Average number of workers ) × 100
= [(600-150 ]/ 4000 ) × 100 = ( 450 / 4000 )× 100 = 11.25%

(iv) Flux Method:

= (No. of separations + No. of accessions) / Average number of workers × 100
= [(200+600)/(3,800+4,200) ÷ 2 ]× 100 = 800 / 4,000 × 100 = 20%

Solution 58:
Labour Turnover Rate (Replacement method) = No. of workers replaced / Average No. of workers
Or, 8/100 = 36/Average No. of workers
Or, Average No. of workers = 450

CA Nitin Guru | [Link] 2.8

 Chapter 3 Employee Cost & Direct Expenses Solution

Labour Turnover Rate (Separation method) = No. of workers separated / Average No. of workers
Or, 6/100 = No. of workers separated / 450
Or, No. of workers separated = 27

Labour Turnover Rate (Flux Method)= [No. of Separations + No. of accession (Joinings)] / Average No. of
workers
Or, 14/100 = [27 + No. of accessions (Joinings)] / 450
Or, 100 (27 + No. of Accessions) = 6,300
Or, No. of Accessions = 36
(i) The No. of workers recruited and Joined = 36
(ii) The No. of workers left and discharged = 27

Solution 60:
Time Time Wages (₹) Bonus(₹) Total Wages (₹) Earning Per Hour
Allowed Taken (₹)
Halsey* Rowan** Halsey Rowan Halsey Rowan
(1) (2) (3) = (2) x (4) (5) (6) (7) (8) (9)
₹ 80 = (3) +(4) = (3) + (5) = (6)/(2) = (7)/(2)
24,960 24,960 19,96,800 - - 19,96,800 19,96,800 80.00 80.00
24,960 18,720 14,97,600 2,49,600 3,74,400 17,47,200 18,72,000 93.33 100.00
24,960 12,480 9,98,400 4,99,200 4,99,200 14,97,600 14,97,600 120.00 120.00
24,960 6,240 4,99,200 7,48,800 3,74,400 12,48,000 8,73,600 200.00 140.00

* Bonus under Halsey Plan = 50% of (Time Allowed – Time Taken) × Rate per hour
𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
** Bonus under Rowan Plan = 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑 x Time Saved x Rate per Hour
Rowan scheme of bonus keeps checks on speed of work as the rate of incentive increases only upto 50% of
time taken to time allowed but the rate decreases as the time taken to time allowed comes below 50%. It
provides incentives for efficient workers for saving in time but also puts check on careless speed. On
implementation of Rowan scheme, the management of ADV Pvt. Ltd. would resolve issue of the slow speed
work while maintaining the skill and precision required maintaining the quality of product.

Solution 62:
Calculation of total normal hours to be paid for Mr. Deep (Semi-skilled):
Day Normal Hours Extra Hours Overtime Equivalent Total Normal
Hours normal hours hours
for overtime
worked
A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 --- --- --- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 1½ 1 10
Friday 8 1 1½ 3 12
Saturday --- --- --- --- ---
Total 40 4 5 10 54

Calculation of total normal hours to be paid for Mr. Sam (Skilled):

Day Normal hours Extra hours Overtime Equivalent Total normal
hours normal hours hours
for overtime
worked
A B C D=Cx2 E=A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 --- --- --- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 1½ 1 10
Friday 8 1 1½ 3 12

CA Nitin Guru | [Link] 2.9

 Chapter 3 Employee Cost & Direct Expenses Solution

Saturday 5 3* + 1 1** 2 11
Total 45 8 6 12 65
*Mr. Sam will be paid for equivalent 8 normal working hours at ordinary wage rate, through 5 hours of working
is required on Saturday. Further, extra 9th hour worked will also be paid at ordinary wage rate.
** Overtime of 1 hour worked over and above 9 hours will be paid at overtime rate.
Wages payable:
Mr. Deep Mr. Sam
Basic Wages per hour (₹ 400/8, ₹ 600/8) (₹) 50 75
Dearness allowance per hour (@ 20%) (₹) 10 15
Hourly rate (₹) 60 90
Total equivalent normal hours 54 65
Total Wages payable (₹) 3,240 5,850

Solution 63:
(i) Calculation of effective hourly rate of earnings under Rowan Incentives Plan:
Standard time allowed = 10 hours
Time taken = 8 hours, Time saved = 2 hours
Particulars Amount (₹)
A Basic guaranteed wages (₹ 150 x 8 hours) 1,200
B Add: Bonus for time saved (2/10 x 8 x ₹ 150) 240
C Total earnings (A + B) 1,440
D Hours worked 8 hours
E Effective Hourly rate (C÷D) 180

(ii) Let the time taken to complete the job is “T” and the time saved is 10-T
Effective hourly rate under the Halsey Incentive Scheme
(𝑅𝑎𝑡𝑒×𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑)+(𝑅𝑎𝑡𝑒 ×50% 𝑜𝑓 𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑)
= 𝐻𝑜𝑢𝑟𝑠 𝑊𝑜𝑟𝑘𝑒𝑑
= ₹ 180
(₹150×𝑇)+₹150×50%(10−𝑇)
𝑇
= ₹ 180
150T + 750 – 75T = 180T
180T – 75T = 750
750
T = 105 = 7.14 hours

Solution 64:
Particulars Noida Patparganj
Hours worked 36 hr. 33.75 hr.
Conversion Costs ₹ 6,084 ₹ 5,569
Less: Overheads ₹ 900 ₹ 844
(₹ 25 × 36 hr.) (₹ 25 × 33.75 hr.)
Labour Cost ₹ 5,184 ₹ 4,725
(i) Finding of Normal wage rate:
Let wage rate be ₹ R per hour, this is same for both the Noida and Patparganj factory.
Normal wage rate can be found out taking total cost of either factory.
Noida: Rowan Plan
Total Labour Cost = Wages for hours worked + Bonus as per Rowan Plan
₹ 5,184 = Hours worked x rate per hour + (Time saved/time allowed x Hours worked x Rate per hour)
Or, ₹ 5,184 = 36hr. x R + ((45 – 36)/45 x 36 x R)
Or, ₹ 5,184 = 36R + 7.2R
R = ₹ 120
Normal wage = 36hr. x ₹ 120 = ₹ 4,320
Or
Patparganj: Halsey Plan
Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan
₹ 4,725 = Hours worked × Rate per hour + (50% × Hours saved × Rate per hour)
₹ 4,725 = 33.75 hr. × R + 50% × (45 hr. – 33.75 hr.) × R
₹ 4,725 = 39.375 R
R = ₹ 120

CA Nitin Guru | [Link] 2.10

 Chapter 3 Employee Cost & Direct Expenses Solution

Normal Wage = 33.75 hrs × ₹ 120 = ₹ 4,050

(ii) Comparison of conversion costs:

Particulars Noida (₹) Patparganj (₹)
Normal Wages (36 x 120) 4,320
(33.75 x 120) 4,050
Bonus (7.2 x 120) 864
(5.625 x 120) 675
Overhead 900 844
6,084 5,569

Solution 66:
(i) Calculation of net wages receivable by each employee from the employer (October 2022):
Ram (₹) Shyam (₹) Mohan (₹) Kundan (₹) Total (₹)
Wages for October 2022 3,000 3,600 3,900 2,500 13,000
(₹ 100 x (₹ 120 x (₹ 130 x
30 days) 30 days) 30 days)
Less: Employee Contribution to
PF @ 8% 240 288 312 200 1,040
Less: Employee Contribution to
ESI @ 4% 120 144 156 100 520
Net Wages Receivable 2,640 3,168 3,432 2,200 11,440

(ii) Calculation of total amount of Provident Fund required to be deposited by employer (October 2022):
(₹)
Total Wages for the month 13,000
Employer’s Contribution to Provident Fund @8% of ₹ 13,000 1,040
Add: Employee’s Contribution to Provident Fund @8% of ₹ 13,000 1,040
Total amount of Provident Fund required to be deposited by employer 2,080

(iii) Calculation of total amount of ESI required to be deposited by employer (October 2022):
(₹)
Total Wages for the month 13,000
Employer’s Contribution to ESI @5% of ₹ 13,000 650
Add: Employee’s Contribution to ESI @4% of ₹ 13,000 520
Total amount of ESI required to be deposited by employer 1,170

(iv) Total labour cost to employer (October 2022):

(₹)
Total Wages for the month 13,000
Add: Employer’s Contribution to Provident Fund @8% of ₹ 13,000 1,040
Add: Employer’s Contribution to ESI @5% of ₹ 13,000 650
Total labour cost to employer 14,690

(v) Calculation of Total Cost for October 2022

(₹)
Total Material Cost Total Labour Cost 20,000
Total Overheads (Equal to Labour Cost) 14,690
14,690
Total Cost 49,380

Solution 67:
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑑
Labour Turnover Rate (Replacement method) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
× 100
10 50
Or, 100
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
Thus, Average No. of workers = 500

CA Nitin Guru | [Link] 2.11

 Chapter 3 Employee Cost & Direct Expenses Solution

𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑

Labour Turnover Rate (Separation method) = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
× 100
5 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑
Or, 100
= 500
Thus, No. of workers separated = 25
Labour Turnover Rate (Flux Method)
𝑁𝑜. 𝑜𝑓 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛𝑠 + 𝑁𝑜. 𝑜𝑓 𝐴𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 (𝐽𝑜𝑖𝑛𝑖𝑛𝑔𝑠)
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
× 100
20 25+ 𝑁𝑜. 𝑜𝑓 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑜𝑛𝑠 (𝐽𝑜𝑖𝑛𝑖𝑛𝑔𝑠)
Or, 100
= 500
Or, 100 (25 + No. of Accessions) = 10,000
Or, 25 + No. of Accessions =100
Thus, No. of Accessions = 100 - 25 =75
Accordingly,
(i) Workers recruited and joined = 75
(ii) Workers left and discharged = 25
(iii) Average number of workers on roll = 500

Solution 68:
(i) Calculation of wages of Mr. ‘A’ under different wage schemes:
A. Time rate
Wages = Time Worked × Rate for the time
= 48 hours x ₹ 15
= ₹ 720
B. Piece rate with a guaranteed weekly wage
Wages = Number of units produced × Rate per unit
= 200 units x ₹ 4.50*
= ₹ 900
*(₹ 15 / 60 minutes) x 18 minutes = ₹ 4.50
C. Halsey Premium Plan
Wages = Time taken × Time rate + 50% of time saved × Time rate
Wages = Time taken × Time rate + 50% (Standard time – Actual time) × Time rate
= (48 hours x ₹ 15) + 50% of (60 hours# – 48 hours) x ₹ 15
= ₹ 720 + ₹ 90
= ₹ 810
#(200 units x 18 minutes) / 60 minutes = 60 hours
D. Rowan Premium Plan
𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑
Wages = Time taken × Rate per hour + 𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑 × Time taken × Rate per hour
60−48 ℎ𝑜𝑢𝑟𝑠
= (48 hours x ₹ 15) + ( 60 ℎ𝑜𝑢𝑟𝑠
× 48 ℎ𝑜𝑢𝑟𝑠 ×15)
= ₹ 720 + ₹ 144
= ₹ 864

(ii) The company may follow Halsey Premium Plan over Rowan Premium Bonus Plan as the total wages paid is
lower than that of Rowan Premium Bonus Plan.

Solution 70:
Following information are available from the cost records
Employee turnover rate:
It comprises of computation of Employee turnover by using following methods:
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑠𝑒𝑝𝑎𝑟𝑎𝑡𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
(i) Separate Method: = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙
× 100
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑙𝑒𝑓𝑡 + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑖𝑠𝑐ℎ𝑎𝑟𝑔𝑒𝑑
OR, = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙
× 100
(160+640)
= (9,400 + 10,600)÷
× 100
800
= 10,000
× 100= 8%

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

(ii) Replacement Method = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙 × 100
400
= 10,000 x 100 = 4%

CA Nitin Guru | [Link] 2.12

 Chapter 3 Employee Cost & Direct Expenses Solution

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑗𝑜𝑖𝑛𝑖𝑛𝑔 𝑖𝑛 𝑎 𝑝𝑒𝑟𝑖𝑜𝑑 (𝑒𝑥𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡)

(iii) New Recruitment = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙
× 100
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑅𝑒𝑐𝑟𝑢𝑖𝑡𝑚𝑒𝑛𝑡𝑠− 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡𝑠
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙
× 100
1500−400
= 10,000
× 100
1,100
= 10,000
× 100= 11%

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑜𝑛 + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑒𝑤 𝑗𝑜𝑖𝑛𝑖𝑛𝑔

Flux Method = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑛 𝑟𝑜𝑙𝑙
× 100
(800+400+1,100)
= (9,400+10,600)÷2
× 100
2,300
= 10,000
× 100 = 23%

CA Nitin Guru | [Link] 2.13