3

Labour

BASIC CONCEPTS AND FORMULAE

Basic Concepts
1. Labour Cost: Cost incurred for hiring of human resource of employees
2. Direct Labour: Any Labour Cost that is specifically incurred for or can be readily charged
to or identified with a specific job, contract, work order or any other unit of cost.
3 Idle Time: The time for which the employer pays but obtains no direct benefit or for
no productive purpose.
4. Normal Idle Time: Time which can not be avoided or reduced in the normal course of
business. The cost of normal idle time should be charged to the cost of production.
5. Abnormal Idle Time: It arises on account of abnormal causes and should be
charged to Costing Profit and Loss account.
6. Time Keeping: It refers to correct recording of the employee’s attendance time
7. Time Booking: It is basically recording the details of work done and the time spent
by workers on each job or process.
8. Overtime: Payment to workers, when a worker works beyond the normal working
hours. Usually overtime has to be paid at double the rate of normal hours.
9. Overtime Premium: It’s the amount of extra payment paid to a worker under overtime.
10. Labour Turnover: It is the rate of change in labour force during a specified period
due to resignation, retirement and retrenchment. If the labour turnover is high, it’s a
sign of instability and may affect the profitability of the firm.
11. Incentives: It is the simulation for effort and effectiveness by offering monetary
inducement or enhanced facilities.
12. Time Rate System: The amount of wages due to a worker is arrived at by
multiplying the time worked by the appropriate time rate.
13. Differential Time Rate: Different hourly rates are fixed for different levels of efficiency.
Upto a certain level a fixed rate is paid and based on the efficiency level the hourly rate
increases gradually.

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 3.2 Cost Accounting

14. Straight Piece Work: Payment is made on the basis of a fixed amount per unit of output
irrespective of time taken. It is the number of units produced by the worker multiplied by
rate per unit.
15. Differential Piece Rate: For different level of output below and above the standard,
different piece rates are applicable.
16. Wage Abstract: A summary giving details of wages to be charged to individual jobs,
work orders or processes for a specific period.
Basic Formulas
The formulas for different wage payment and incentive systems are given below:
1 Time Rate System
Earnings = Hours worked × Rate per hour
2 Straight Piece Rate System
Earnings = Number of units × Piece rate per unit
3 Differential piece Rate System
3.1 F.W. Taylor’s System
Efficiency Payment
Less than 100% 83% of the normal piece rate or 80% of piece rate when
below standard
Either 100% or 125% of the normal piece rate or 120% of piece rate
more than 100% when at or above standard
3.2 Merrick Differential Piece Rate System
Efficiency Payment
Up to 83 % Ordinary piece rate
83% to 100% 110% of ordinary piece rate (10% above the ordinary
piece rate)
Above 100% 120% or 130% of ordinary piece rate (20% to 30% of
ordinary piece rate)
4 Combination of Time and Piece Rate
4.1 Gantt Task and Bonus System
Output Payment
Output below standard Guaranteed time rate
Output at standard 120% of time rate

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 Labour 3.3

Output above standard 120% of piece rate

4.2 Emerson Efficiency System
Earning is calculated as follows :
Efficiency Payment
Below 66-2/3% No bonus, only guaranteed time rate is paid.
66-2/3% to 100% Worker is paid by hourly rate for the time he actually
worked plus in increase in bonus according to degree of
efficiency on the basis of step bonus rates. Bonus rate
can be up to 20%.
Above 100% 120% of time wage rate plus additional bonus of 1% for
each 1% increase in efficiency.
4.3 Bedaux Pont System
⎛ 75 Bedaux pointssaved ⎞
Earnings = Hours worked × Rate per hour + ⎜ × × Rate per hour ⎟
⎝ 100 60 ⎠
4.4 Haynes Manit Systems
This system is similar to Bedaux Point system. Instead of Bedaux points saved,
‘MANIT’ (Man-minutes) saved are measured for payment of bonus. Bonus is
distributed as follows :
50% bonus to the workers
10% bonus to the supervisors
40% bonus to the employer
4.5 Accelerated Premium System
In this system individual employer makes his own formula. The following
formula may be used for a general idea of the scheme:
Y= 0.8 × x2
Where
y= wages
x= efficiency
5 Premium Bonus Plan
5.1 Halsey Premium Plan
⎛ 50 ⎞
Earnings = Hours worked × Rate per hour + ⎜ × Time saved × Rate per hour) ⎟
⎝ 100 ⎠

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 3.4 Cost Accounting

5.2 Halsey-Weir Premium Plan

⎛ 30 ⎞
Earnings = Hours worked × Rate per hour + ⎜ × Time saved × Rate per hour) ⎟
⎝ 100 ⎠
5.3 Rowan System
⎛ Time saved ⎞
Earnings = Hours worked × Rate per hour + ⎜ × Hours worked × Rate per hour) ⎟
⎝ Time allowed ⎠
5.4 Barth Sharing Plan
Earnings = Rate per hour × Standard hours × Hours worked
5.5 Scanlon Plan
Average Annual Salaries and Wages
Bonus Percentage =
Average Annual Sales Revenue
6 Labour Turnover Rate
Number of separations during the period
6.1. Separation Method = × 100
Average number of wor ker s during the same period
Number of wor ker s replace in a period
6.2. Replacement Method = × 100
Average number of wor ker s during the same period

No. of separations + No. of replacements

6.3. Flux Method = × 100
Average number of wor ker s during the same period

Question 1
Discuss the Gantt task and bonus system as a system of wage payment and incentives.
Answer
Gantt Task and Bonus System: This system is a combination of time and piecework system.
According to this system a high standard or task is set and payment is made at time rate to a
worker for production below the set standard.
Wages payable to workers under the plan are calculated as under:
Output Payment
(i) Output below standard Guaranteed time rate
(ii) Output at standard Time rate plus bonus of 20% (usually) of time rate
(iii) Output over standard High piece rate on worker’s output. (It is so fixed
so as to include a bonus of 20% of time rate)

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 Labour 3.5

Question 2
Discuss the accounting treatment of Idle time and overtime wages
Answer
Accounting treatment of idle time wages & overtime wages in cost accounts: Normal idle
time is treated as a part of the cost of production. Thus, in the case of direct workers, an
allowance for normal idle time is built into the labour cost rates. In the case of indirect
workers, normal idle time is spread over all the products or jobs through the process of
absorption of factory overheads.
Under Cost Accounting, the overtime premium is treated as follows:
¾ If overtime is resorted to at the desire of the customer, then the overtime premium may
be charged to the job directly.
¾ If overtime is required to cope with general production programme or for meeting urgent
orders, the overtime premium should be treated as overhead cost of particular
department or cost center which works overtime.
¾ Overtime worked on account of abnormal conditions should be charged to costing Profit
& Loss Account.
¾ If overtime is worked in a department due to the fault of another department the overtime
premium should be charged to the latter department.
Question 3
Discuss the effect of overtime payment on productivity.
Answer
Effect of overtime payment on productivity: Overtime work should be resorted to only when it
is extremely essential because it involves extra cost. The overtime payment increases the cost
of production in the following ways:
1. The overtime premium paid is an extra payment in addition to the normal rate.
2. The efficiency of operators during overtime work may fall and thus output may be less
than normal output.
3. In order to earn more the workers may not concentrate on work during normal time and
thus the output during normal hours may also fall.
4. Reduced output and increased premium of overtime will bring about an increase cost of
production.
Question 4
State the circumstances in which time rate system of wage payment can be preferred in a
factory.

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 3.6 Cost Accounting

Answer
Circumstances in which time rate system of wage payment can be preferred:
In the following circumstances the time rate system of wage payment is preferred in a factory.
1. Persons whose services cannot be directly or tangibly measured, e.g., general helpers,
supervisory and clerical staff etc.
2. Workers engaged on highly skilled jobs or rendering skilled services, e.g., tool making,
inspection and testing.
3. Where the pace of output is independent of the operator, e.g., automatic chemical plants.
Question 5
Discuss briefly, how you will deal with casual workers and workers employed on outdoor work
in Cost Accounts.
Answer
Causal and outdoor workers: Casual workers (badli workers) are employed temporarily, for
a short duration to cope with sporadic increase in volume of work. If the permanent labour
force is not sufficient to cope effectively with a rush of work, additional labour (casual workers)
are employed to work for a short duration. Out door workers are those workers who do not
carry out their work in the factory premises. Such workers either carry out the assigned work
in their homes (e.g., knitwear, lamp shades) or at a site outside the factory.
Casual workers are engaged on a dally basis. Wages are paid to them either at the end of the
day’s work or after a periodic interval. Wages paid are charged as direct or indirect labour cost
depending on their identifiability with specific jobs, work orders, or department.
Rigid control should be exercised over the out-workers specially with regard to following:
1. Reconciliation of materials drawn/issued from the store with the output.
2. Ensuring the completion of output during the stipulated time so as to meet comfortably
the orders and contracts.
Question 6
It should be management’s endeavor to increase inventory turnover but to reduce labour
turnover. Expand and illustrate the idea contained in this statement.
Answer
Inventory turnover: It is a ratio of the value of materials consumed during a period to the
average value of inventory held during the period. A high inventory turnover indicates fast
movement of stock.
Labour turnover: It is defined as an index denoting change in the labour force for an
organization during a specified period. Labour turnover in excess of normal rate is termed as

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 Labour 3.7

high and below it as low turnover.

Effects of high inventory turnover and low labour turnover: High inventory turnover reduces the
investment of funds in inventory and thus accounts for the effective use of the concern’s
financial resources. It also accounts for the increase of profitability of a business concern. As
against high labour turnover the low labour turnover is preferred because high labour turnover
causes-decrease in production targets; increase in the chances of break-down of machines at
the shop floor level; increase in the number of accidents; loss of customers and their brand
loyalty due to either non-supply of the finished goods or due to sub-standard production of
finished goods; increase in the cost of selection, recruitment and training; increase in the
material wastage and tools breakage.
All the above listed effects of high labour turnover accounts for the increase in the cost of
production/process/service. This increase in the cost finally accounts for the reduction of
concern’s profitability. Thus, it is necessary to keep the labour turnover at a low level.
As such, it is correct that management should endeavour to increase inventory turnover and
reduce labour turnover for optimum and best utilization of available resources and reduce the
cost of production and thus increase the profitability of the organization.
Question 7
What are the main features of Halsey and Rowan method of payment of remuneration? State
how Rowan Scheme is better than Halsey Scheme. Given time allowed of 30 hours for a job
and the wage rate of ` 1.00 per hour, illustrate your answer by assuming your own figure for
time taken to do the job.
Answer
F.A. Halsey, an American Engineer, brought out his plan in 1891. the main features of his plan
were as follows:
(i) Time rate is guaranteed.
(ii) Standard time is fixed for the job or operation.
(iii) In case a worker completes the job or operation in less time than allowed time (or
standard time) he is paid a fixed percentage of saving in time, which is usually 50%.
(iv) Under this plan, the employer is benefited to the extent of remaining 50% of time saved.
Employer is not protected against over speeding jobs by workers resulting in waste, damages etc.
Rowan Scheme was introduced by James Rowan in Glasgow in the year 1898. it is similar to
Halsey Scheme but the premium concept here is different. The main features of Rowan
Scheme are:
(i) Time rate is guaranteed.
(ii) Bonus is based on time saved.

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(iii) Instead of fixed percentage of time saved, bonus is in proportion of time saved to time
allowed.
(iv) Protects employer against loose rate setting.
(v) Employer shares the benefit of increased output.
The Rowan Scheme is better than Halsey Scheme because of the following reasons:
(i) In Halsey Scheme, bonus is set at 50% of time saved. It does not serve as a strong
incentive. If workers over speed, the quality of the products deteriorates.
(ii) In Rowan Scheme, there is an automatic check on the earnings and thus over
speeding is arrested. In Halsey Scheme if two third of the time is saved, the worker
can double his earning per hour and in Rowan Scheme, this is not possible.
(iii) The earning per hour in Rowan Scheme is higher upto 50% of time saved and falls
thereafter whereas in Halsey Scheme the earnings per hour increases at a slow
speed and can be doubled.
Consider the following example in which the time allowed for performing the job is 30 hours
and the wage rate is ` 1.00 per hour. We will depict with the help of imaginary figures in the
following example, how the earnings per hour under Halsey and Rowan plan will vary.
Example:
Time Time Wages Bonus Total Wages Earnings/hr
Allowed taken Halsey Rowan Halsey Rowan Halsey Rowan
(1) (2) (3=2×` 1) (4)` (5) ` (7 = 3+4) ` (8 = 3+5) ` (9 = 7/2)` (10 = 8/2)`
30 30 30 - - 30.00 30.00 1.00 1.00
30 20 20 5.00 6.67 25.00 26.67 1.25 1.33
30 15 15 7.50 7.50 22.50 22.50 1.50 1.50
30 10 10 10.00 6.67 20.00 16.67 2.00 1.67
30 5 5 12.50 4.17 17.50 9.17 3.50 1.83
Question 8
Explain the meaning of and the reasons for Idle time and discuss its treatment in cost
accounting.
Answer
Idle time refers to the labour time paid for but not utilized on production. It, in fact, represents
the time for which wages are paid, but during which no output is given out by the workers. This
is the period during which workers remain idle.
Reasons for idle time: According to reasons, idle time can be classified into normal idle time
and abnormal idle time. Normal idle time is the time which cannot be avoided or reduced in the
normal course of business.

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 Labour 3.9

The main reasons for the occurrence of normal idle time are as follows:
1. Time taken by workers to travel the distance between the main gate of factory and the
place of their work.
2. Time lost between the finish of one job and starting of next job.
3. Time spent to overcome fatigue.
4. Time spent to meet their personal needs like taking lunch, tea etc.
The main reasons for the occurrence of abnormal idle time are:
1. Due to machine break downs, power failure, non-availability of raw materials, tools or
waiting for jobs due to defective planning.
2. Due to conscious management policy decision to stop work for some time.
3. In the case of seasonal goods producing units, it may not be possible for them to produce
evenly throughout the year. Such a factor too results in the generation of abnormal idle
time.
Treatment in Cost Accounting: Idle time may be normal or abnormal.
Normal idle time: It is inherent in any job situation and thus it cannot be eliminated or reduced.
For example:- time gap between the finishing of one job and the starting of another; time lost
due to fatigue etc.
The cost of normal idle time should be charged to the cost of production. This may be done by
inflating the labour rate. It may be transferred to factory overheads for absorption, by adopting
a factory overhead absorption rate.
Abnormal idle time: It is defined as the idle time which arises on account of abnormal causes;
e.g. strikes; lockouts; floods; major breakdown of machinery; fire etc. Such an idle time is
uncontrollable.
The cost of abnormal idle time due to any reason should be charged to Costing Profit & Loss
Account.
Question 9
Discuss the objectives of time keeping & time booking.
Answer
Objectives of time keeping and time booking: Time keeping has the following two objectives:
(i) Preparation of Payroll: Wage bills are prepared by the payroll department on the basis of
information provided by the time keeping department.
(ii) Computation of Cost: Labour cost of different jobs, departments or cost centers are
computed by costing department on the basis of information provided by the time
keeping department.

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 3.10 Cost Accounting

The objectives of time booking are as follows:

(i) To ascertain the labour time spent on the job and the idle labour hours.
(ii) To ascertain labour cost of various jobs and products.
(iii) To calculate the amount of wages and bonus payable under the wage incentive scheme.
(iv) To compute and determine overhead rates and absorption of overheads under the labour
and machine hour method.
(v) To evaluate the performance of labour by comparing actual time booked with standard or
budgeted time.
Question 10
Distinguish between Job Evaluation and Merit Rating
Answer
Job Evaluation: It can be defined as the process of analysis and assessment of jobs to
ascertain reliably their relative worth and to provide management with a reasonably sound
basis for determining the basic internal wage and salary structure for the various job positions.
In other words, job evaluation provides a rationale for differential wages and salaries for
different groups of employees and ensures that these differentials are consistent and
equitable.
Merit Rating: It is a systematic evaluation of the personality and performance of each
employee by his supervisor or some other qualified persons.
Thus the main points of distinction between job evaluation and merit rating are as follows:
1. Job evaluation is the assessment of the relative worth of jobs within a company and merit
rating is the assessment of the relative worth of the man behind a job. In other words job
evaluation rate the jobs while merit rating rate employees on their jobs.
2. Job evaluation and its accomplishment are means to set up a rational wage and salary
structure whereas merit rating provides scientific basis for determining fair wages for
each worker based on his ability and performance.
3. Job evaluation simplifies wage administration by bringing uniformity in wage rates. On
the other hand merit rating is used to determine fair rate of pay for different workers on
the basis of their performance.
Question 11
A factory having the latest sophisticated machines wants to introduce an incentive scheme for
its workers, keeping in view the following:
(i) The entire gains of improved production should not go to the workers.
(ii) In the name of speed, quality should not suffer.

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 Labour 3.11

(iii) 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.
Answer
Rowan scheme of premium bonus (variable sharing plan) is a suitable incentive scheme for
the workers of the factory. If this scheme is adopted, the entire gains due to time saved by a
worker will not pass to him.
Another feature of this scheme is that a worker cannot increase his earnings or bonus by
merely increasing its work speed. The reason for this is that the bonus under Rowan Scheme
is maximum when the time taken by a worker on a job is half of the time allowed. As this fact
is known to the workers, therefore they work at such a speed which helps them to maintain the
quality of output too.
Lastly, Rowan System provides a safeguard in case of any loose fixation of the standards by
the rate setting department. It may be observed from the following illustration that in the
Rowan Scheme the bonus paid will be low due to any loose fixation of standards. Workers
cannot take undue advantage of such a situation. The above three features of Rowan Plan
can be discussed with the help of the following illustration:
Illustration
(i) Time allowed = 4 hours
Time taken = 3 hours
Time Saved = 1 hour
Rate = ` 5 per hour.
Time taken
Bonus = × Time saved × Rate
Time allowed
3 hours
= × 1 hour × ` 5 = ` 3.75
4 hours
In the above illustration time saved is 1 hour and therefore total gain is ` 5. Out of
` 5/- according to Rowan Plain only ` 3.75 is given to the worker in the form of bonus. In other
words a worker is entitled for 75 percent of the time saved in the form of bonus.
(ii) The figures of bonus in the above illustration when the time taken is 2 hours and 1 hours
respectively are as below:
Time taken
Bonus = × Time saved × Rate
Time allowed
2 hours
= × 2 hours × ` 5 = ` 5
4 hours

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 3.12 Cost Accounting

1 hours
Bonus = × 3 hours × ` 5 = ` 3.75
4 hours
The above figures of bonus clearly show that when time taken is half of the time allowed, the
bonus is maximum. When the time is reduced from 2 to 4 hours, the bonus figures fell by ` 1.25.
Hence, it is quite apparent to workers that it is of no use to increase speed of work. These
features of Rowan Plan thus protect the quality of output.
(iii) If the rate setting department erroneously sets the time allowed as 10 hours instead of 4 hours,
in the above illustration, then the bonus paid will be as follows:
3 hours
Bonus = × 7 hours × ` 5 = ` 10.5
10 hours
The bonus paid for saving 7 hours thus is ` 10.50 which is approximately equal to the wages of 2
hours. In other words the bonus paid to the workers is low. Hence workers cannot take undue
advantage of any mistake committed by the rate setting department of the concern.
Question 12
What do you mean by time and motions study? Why is it so important to management?
Answer
Time and motions study: It is the study of time taken and motions (movements) performed by
workers while performing their jobs at the place of their work. Time and motion study has
played a significant role in controlling and reducing labour cost.
Time Study is concerned with the determination of standard time required by a person of
average ability to perform a job. Motion study, on the other hand, is concerned with
determining the proper method of performing a job so that there are no wasteful movements,
hiring the worker unnecessarily. However, both the studies are conducted simultaneously.
Since materials, tools, equipment and general arrangement of work, all have vital bearing on
the method and time required for its completion. Therefore, their study would be incomplete
and would not yield its full benefit without a proper consideration of these factors.
Time and motion study is important to management because of the following features:
1. Improved methods, layout, and design of work ensures effective use of men, material
and resources.
2. Unnecessary and wasteful methods are pin-pointed with a view to either improving them
or eliminating them altogether. This leads to reduction in the work content of an
operation, economy in human efforts and reduction of fatigue.
3. Highest possible level of efficiency is achieved in all respect.
4. Provides information for setting labour standards - a step towards labour cost control and
cost reduction.
5. Useful for fixing wage rates and introducing effective incentive scheme.

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 Labour 3.13

Question 13
Discuss the treatment of overtime premium in Cost accounting.
Answer
Treatment of Overtime Premium in Cost Accounting
• If overtime is resorted to at the desire of the customer, then overtime premium may be
charged to the job directly.
• If overtime is required to cope with general production programme or for meeting urgent
orders, the overtime premium should be treated as overhead cost of the particular
department or cost center, which works overtime.
• If overtime is worked in a department, due to the fault of another department, the
overtime premium should be charged to the latter department.
• Overtime worked on account of abnormal conditions such as flood, earthquake etc.,
should not be charged to cost but to costing P/L A/c.
Question 14
ZED Limited is working by employing 50 skilled workers it is considered the introduction of
incentive scheme-either Halsey scheme (with 50% bonus) or Rowan scheme of wage payment
for increasing the labour productivity to cope up the increasing demand for the product by
40%. It is believed that proposed incentive scheme could bring about an average 20%
increase over the present earnings of the workers; it could act as sufficient incentive for them
to produce more.
Because of assurance, the increase in productivity has been observed as revealed by the
figures for the month of April, 2004.
Hourly rate of wages (guaranteed) ` 30
Average time for producing one unit by one worker at the previous 1.975 hours
Performance (This may be taken as time allowed)
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 the 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 their assurance.

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Answer
Working notes:
1. Computation of time saved (in hours) per month:
= (Standard production time of 6,120 units – Actual time taken by the workers)
= (6,120 units × 1.975 hours – 24 days × 8 hrs per day × 50 skilled workers)
= (12,087 hours – 9,600 hours)
= 2,487 hours
2. Computation of bonus for time saved hours under Halsey and Rowan schemes:
Time saved hours = 2,487 hours
(Refer to working note 1)
Wage rate per hour = ` 30
Bonus under Halsey Scheme = ½ × 2,487 hours × ` 30
(With 50% bonus) = ` 37,305
Time saved
Bonus under Rowan Scheme = × Time taken × Rate per hour
Time allowed
2,487 hours
= × 9,600 hours × ` 30
12,087
= ` 59,258.38
(i) Computation of effective rate of earnings under the Halsey and Rowan
schemes:
Total earnings (under Halsey scheme) = Time wages + Bonus
(Refer to working note 2)
= 24 days × 8 hours + 50 skilled
workers × ` 30+ ` 37,305
= ` 2,88,000 + ` 37,305 = ` 3,25,305
Total earnings (under Rowan scheme) = Time wages + Bonus
(Refer to working note 2)
= ` 2,88,000 + ` 59,258.38
= ` 3,47,258.38

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 Labour 3.15

Effective rate of earnings per hour (under Halsey Plan = ` 33.89

(` 3,25,305/9,600 hrs)
Effective rate of earnings per hour (under Rowan Plan = ` 36.17
(` 3,47,258.38/9,600 hrs)
(ii) Savings to the ZED Ltd., in terms of direct labour cost per piece:
(`)
Direct labour cost (per unit) under time wages system 59.25
(1,975 time per unit × ` 30)
Direct labour cost (per unit) under Halsey Plan 53.15
(` 3,25,305 / 6,120 units)
Direct labour cost (per unit) under Rowan Plan 56.74
(` 3,47,258.38/6,120 units)
Saving of direct labour cost under:
* Halsey Plan ` 6.10
(` 59.25 – 53.15)
* Rowan Plan ` 2.51
(` 59.25-56.74)
(iii) Advise to ZED Ltd.: (about the selection of the scheme to fulfill assurance)
Halsey scheme brings more savings to the management of ZED Ltd., over the present
earnings of ` 2,88,000 but the other scheme viz Rowan fulfils the promise of 20%
increase over the present earnings of ` 2,88,000 by paying 20.58% in the form of bonus.
Hence Rowan Plan may be adopted.
Question 15
A Company is undecided as to what kind of wage scheme should be introduced. The following
particulars have been compiled in respect of three systems, which are under consideration of
the management.
Workers
Actual hours worked in a week 38 40 34
Hourly rate of wages ` 6 ` 5 ` 7.20
Production in units
Product P 21 - 60
Product Q 36 - 135
Product R 46 25 -

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 3.16 Cost Accounting

Standard time allowed per unit of each product is:

P Q R
12 18 30
Minutes
For the purpose of piece rate, each minute is valued at ` 0.10
You are required to calculate the wages of each worker under:
(i) Guaranteed hourly rates basis
(ii) Piece work earnings basis, but guaranteed at 75% of basic pay (guaranteed hourly rate)
if his earnings are less than 50% of basic pay.
(iii) Premium bonus basis where the worker receives bonus based on Rowan scheme.
Answer
(i) Computation of wages of each worker under guaranteed hourly rate basis
Workers Actual hours Hourly rate of Wages
worked in a week wages (`) (`)
(a) (b) (c) (d) = (b) × (c)
A 38 6.00 228.00
B 40 5.00 200.00
C 34 7.20 244.80

(ii) Computation of wages of each worker under piece work earnings basis

Worker A Worker B Worker C

Product Piece Units Wages Units Wages Units Wages
Per Unit Rate

(Refer to working note 1 (`) (`) (`)

(a) (b) (c) (d= b*c) (e) (f = b*e) (g) (h=b*g)
P 1.20 21 25.20 - - 60 72
Q 1.80 36 64.80 - - 135 243
R 3.00 46 138.00 25 75 - -

Since each worker has been guaranteed at 75% of basic pay, if his earnings are less
than 50% of basic pay, therefore, workers A and C will be paid the wages as computed

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 Labour 3.17

viz., ` 228 and ` 315 respectively. The computed wage of worker B is ` 75 which is less
than 50% of basic pay viz., ` 100 therefore he would be paid 75% × ` 200 or ` 150.
Working Notes:
1. Piece rate / per unit
Product Standard time per Piece rate each Piece rate per unit
unit in minutes minute (`) (`)
(a) (b) (c) (d) = (b) × c
P 12 0.10 1.20
Q 18 0.10 1.80
R 30 0.10 3.00
2. Time allowed to each worker
Worker A = 21 units × 12 minutes + 36 units × 18 minutes+46 units × 30 minutes
= 2,280 minutes = 38 hours
Worker B = 25 units × 30 minutes = 750 minutes = 12.5 hours
Worker C = 60 units × 12 minutes + 135 units × 18 minutes
= 720 minutes + 2.430 minutes = 3,150 minutes = 52.50 hours
(iii) Computation of wages of each worker under Premium bonus basis (where each
worker receives bonus based on Rowan Scheme)
Workers Time Time Time Wage Earnings Bonus Total of
allowed taken saved rate/hour earning &
hours hours hours bonus
(Refer to
W. Note 2) (`) (`) (`) (`)
A 38.00 38.00 - 6.00 228.00 - 228.00
B 12.50 40.00 - 5.00 200.00 - 200.00
C 52.50 34.00 18.50 7.20 244.80 86.26 331.06
Question 16
What do you understand by labour turnover? How is it measured?
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 standard of usual labour
turnover in the industry or labour turnover rate for a past period may be taken as the index or
norm against which actual turnover rate should be compared.

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 3.18 Cost Accounting

The methods for measuring labour turnover are:

Number of employees replaced during the year
Replacement method = × 100
Average number of employees on roll during the year
Number of employees separated during the year
Separation method × 100
Average number of employees on roll during the year

⎡No. of employees replaced + No. of employees separated⎤

Flux method = ⎢⎢ during the year during the year ⎥ × 100
⎥
⎣⎢ Average number of employees on roll during the year ⎦⎥
Question 17
A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of ` 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 ` 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%)?
Answer
Working note:
Let T hours be the total time worked in hours by the skilled worker (machineman P); ` 30/- is
the rate per hour; standard time is 4 hours per unit and effective hourly earning rate is `
37.50 then
Time saved
Earning = Hours worked × Rate per hour + × Time taken × Rate per hour
Time allowed
(Under Rowan incentive plan)
(4 - T)
` 37.5 T = (T × ` 30) + × T × ` 30
4
` 37.5 = ` 30 + (4 – T) × ` 7.5
Or ` 7.5 T = ` 22.5
Or T = 3 hours
Total earnings and effective hourly rate of skilled worker (machine man P) under Halsey
Incentive Scheme (50%)
Total earnings = (Hours worked × Rate per hour) + (½ Time saved × Rate per hour)

© The Institute of Chartered Accountants of India

 Labour 3.19

(under 50% Halsey Incentive Scheme)

= (3 hours × ` 30) + (½ × 1 hour × ` 30)
Total earnings ` 105
Effective hourly rate = = = ` 35 / −
Hours taken 3 hours

Question 18
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.
Answer
Labour turnover rate:
It comprises of computation of labour turnover by using following methods:
(i) Separation Method:
No. of wor ker s left + No. of wor ker s disch arg ed
= × 100
Average number of wor ker s
(80 + 320) 400
= x100 = x100 =5%
(7,600 + 8,400) ÷ 2 8,000

(ii) Replacement Method:

No. of wor ker s replaced 300
= x100 = x100 = 3.75%
Average number of wor ker s 8000
(iii) New Recruitment:
No. of workers newly recruited 1,200
= × 100 = × 100 = 15%
Average number of wor ker s 8,000
Flux Method:
No. of separations + No. of accessions
= × 100
Average number of wor ker s
(400 + 1500) 1,900
= × 100 = × 100 = 23.75%
(7,600 + 8,400) ÷ 2 8,000

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 3.20 Cost Accounting

Question 19
Discuss the two types of cost associated with labour turnover.
Answer
Types of cost associated with labour turnover
Two types of costs which are associated with labour turnover are:
(i) Preventive costs: This includes costs incurred to keep the labour turnover at a low level
i.e., cost of medical schemes. If a company incurs high preventive costs, the rate of
labour turnover is usually low.
(ii) Replacement costs: These are the costs which arise due to high labour turnover. If men
leave soon after they acquire the necessary training and experience of work, additional
costs will have to be incurred on new workers, i.e., cost of advertising, recruitment,
selection, training and induction, extra cost also incurred due to abnormal breakage of
tools and machines, defectives, low output, accidents etc., caused due to the inefficiency
and inexperienced new workers.
It is obvious that a company will incur very high replacement costs if the rate of labour
turnover is high. Similarly, only adequate preventive costs can keep labour turnover at a
low level. Each company must, therefore, workout the optimum level of labour turnover
keeping in view its personnel policies and the behaviour of replacement costs and
preventive costs at various levels of labour turnover rates.
Question 20
The management of a company are worried about their increasing labour turnover in factory
and before analyzing the causes and taking remedial steps, they want to have idea of the
profit foregone as –a result of labour turnover in the last year.
Last year sales amounted to ` 83,03,300 and the profit-volume ratio was 20 per cent. 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 in filling vacancies due to labour turnover, 1,00,000
potentially productive hours were lost. The actual direct labour hours includes 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:
(`)
Settlement costs due to leaving 43,820
Recruitment costs 26,740
Selection costs 12,750
Training costs 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.

© The Institute of Chartered Accountants of India

 Labour 3.21

Answer
Working notes:
1. Actual productive hours
Total number of actual hours worked 4,45,000
Less: Unproductive training hours 15,000
Actual productive hours 4,30,000
2. Sales per productive hours (` )
(Total sales / Actual productive hours.) ` 19.31
(` 83,03,300 / 4,30,000 hours)
3. Potential productive hours lost 1,00,000
4. Sales foregone (` ) 19,31,000
(1,00,000 hours × ` 19.31)
5. Contribution foregone (` ) 3,86,200
Sales foregone × P/V Ratio
(` 19,31,000 × 20%)
Statement of Profit foregone last year
on account of Labour Turnover
Contribution foregone 3,86,200
(Refer to working note 5)
Settlement costs due to leaving 43,820
Recruitment costs 26,740
Selection costs 12,750
Training costs 30,490
Total profit foregone 5,00,000
Question 21
The finishing shop of a company employs 60 direct workers. Each worker is paid ` 400 as
wages per week of 40 hours. When necessary, overtime is worked up to a maximum of 15
hours per week per worker at time rate plus one-half as premium. 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 up to the specified limit although no premium on
incentives will be paid.
The company is considering introduction of either Halsey Scheme or Rowan Scheme of Wage
Incentive system. The budgeted weekly output is 19,200 units. The selling price is ` 11 per

© The Institute of Chartered Accountants of India

 3.22 Cost Accounting

unit and the direct Material Cost is ` 8 per unit. The variable overheads amount to ` 0.50 per
direct labour hour and the fixed overhead is ` 9,000 per week.
Prepare a Statement to show the effect on the Company’s weekly Profit of the proposal to
introduce (a) Halsey Scheme, and (b) Rowan Scheme.
Answer
Working notes:
1. Total available hours per week 2,400
(60 workers × 40 hours)
2. Total standard hours required to produce 19,200 units 3,200
(19,200 units/6 units per hour)
3. Total labour hours required after the 2,400
introduction of bonus scheme to produce 19,200 units
(19,200 units / 8 units per man hour)
4. Time saved in hours 800
(3,200 hours – 2,400 hours)
5. Wage rate per hour (` ) 10
(` 400/40 hours)
6. Bonus:
1
(i) Halsey Scheme = × Time saved × Wage rate per hour
2
1
= x 800 hours x ` 10 = ` 4,000
2
Time saved
(ii) Rowan Scheme = × Time taken × Wage rate per hour
Time allowed
800 hours
= × 2,400 hours × ` 10 = ` 6,000
3,200 hours
Statement showing the effect on the Company’s Weekly
present profit by the introduction of Halsey & Rowan schemes
Present Halsey Rowan
(`) (`) (`)
Sales revenue: (A) 2,11,200 2,11,200 2,11,200
(19,200 units × ` 11)
Direct material cost 1,53,600 1,53,600 1,53,600
(19,200 units × ` 8)
Direct wages 32,000 24,000 24,000

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 Labour 3.23

(Refer to working notes 2 & 3) (3,200 hrs. 2,400 hrs. (2,400 hrs.
× ` 10) × ` 10) × ` 10)
Overtime premium 4,000 - -
(800 hrs.
× ` 5)
Bonus - 4,000 6,000
(Refer to working notes 6 (i) & (ii))
Variable overheads 1,600 1,200 1,200
(3,200 hrs. (2,400 hrs. (2,400 hrs.
× 0.50 P) × 0.50 P) × 0.50 P)
Fixed overheads 9,000 9,000 9,000
Total cost : (B) 2,00,200 1,91,800 1,93,800
Profit: {(A)- (B)} 11,000 19,400 17,400
Question 22
The standard hours of job X is 100 hours. The job has been completed by Amar in 60 hours,
Akbar in 70 hours and Anthony in 95 hours.
The bonus system applicable to the job is as follows:-
Percentage of time saved to time allowed Bonus
Saving upto 10% 10% of time saved
From 11% to 20% 15% of time saved
From 21% to 40% 20% of time saved
From 41% to 100% 25% of time saved
The rate of pay is ` 1 per hour, Calculate the total earnings of each worker and also the rate
of earnings per hour.
Answer
Statement of total earnings and rate of earning per hour
Workers: Amar Akbar Anthony
Standard hours of Job 100 hours 100 hours 100 hours
Time taken on the Jobs (i) 60 hours 70 hours 95 hours
Time saved 40 hours 40 hours 30 hours 5 hours
Percentage of time saved to time allowed 40% 30% 5%
Bonus hours (ii) (See Note 1) 6.5 hours 4.5 hours 0.5 hours
Total hours to be paid [(i) + (ii)] 66.5 hours 74.5 hours 95.5 hours
Total earning @ ` 1/- p.h. ` 66.5 ` 74.5 ` 95.5
Rate of earning per hour (See Note 2) ` 1.1083 ` 1.0642 ` 1.005

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 3.24 Cost Accounting

Note:
1. Bonus hours as percentage of time saved:
Amar : 10 hours × 10% + 10 hours × 15%
+ 20 hours × 20% = 6.5 hours
Akbar : 10 hours × 10% + 10 hours × 15%
+ 10 hours × 20% = 4.5 hours
Anthony : 5 hours × 10% = 0.5 hours
2. Rate of Earning per hour:
Total earning
=
Total time taken on the job
` 66.5
Amar : = ` 1.1038
60 hours
` 74.5
Akbar : = ` 1.0642
70 hours
` 95.50
Anthony : = ` 1.005
95 hours
Question 23
Distinguish between Direct and Indirect labour.
Answer
Direct labour cost is the labour costs that is specifically incurred for or can be readily charged
to or identified with a specific job, contract, work-order or any other unit of cost.
Indirect labour costs are labour costs which cannot be readily identified with products or
services but are generally incurred in carrying out production activity.
The importance of the distinction lies in the fact that whereas direct labour cost can be
identified with and charged to the job, indirect labour costs cannot be so charged and are,
therefore, to be treated as part of the factory overheads to be included in the cost of
production.
Question 24
What do you understand by overtime premium? What is the effect of overtime payment on
productivity and cost? Discuss the treatment of overtime premium in cost accounts and
suggest a procedure for control of overtime work.

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 Labour 3.25

Answer
Work done beyond normal working hours is known as overtime work. Overtime payment is the
amount of wages paid for working beyond normal working hours. The rate for overtime work is
higher than the normal time rate; usually it is at double the normal rates. The extra amount so
paid over the normal rate is called overtime premium. Overtime work should be resorted to
only when it is extremely essential because it involves extra cost. The overtime payment
affects to increase the cost of production in the following ways:
(1) The premium paid is an extra payment in addition to the normal rate.
(2) The efficiency of operators during overtime work may fall and thus the output may be
lesser than normal output.
(3) In order to earn more the workers may not concentrate on work during normal time and
thus the output during normal hours may also fall.
(4) Reduced output and increased premium will bring about an increase in costs of
production.
Under cost accounting the overtime premium is treated as follows:
(i) If overtime is resorted to, at the desire of the customer, then overtime premium may
be charged to the job directly.
(ii) If overtime is due to a general pressure of work to increase the output, the premium
may be charged to general overheads.
(iii) If overtime is due to the negligence or delay, it may be charged to the department
concerned.
(iv) If it is due to circumstances beyond control, e.g. fire, strike etc. it may be charged to
Costing Profit and Loss Account.
It is necessary that proper Control over the overtime work should be exercised in order to
keep it to the minimum. The procedure based on following steps may be adopted for
such control.
(1) Watch on the output during normal hours should be maintained to ensure that
overtime is not granted when normal output is not obtained during the normal hours,
without any special reasons.
(2) Statement concerning overtime work be prepared along with justifications, at
appropriate places for putting up before competent authority.
(3) Prior sanction about overtime should be obtained from competent authority.

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 3.26 Cost Accounting

(4) Actual rate of output produced during the overtime period should be compared with
normal rate of output.
(5) Periodical reports on overtime wages should be sent to top management for taking
corrective action
(6) If possible an upper limit may be fixed for each category of worker in respect of
overtime.
Question 25
During audit of accounts of G. Company, your assistant found errors in the calculation of the
wages of factory workers and he wants you to verify his work.
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 per cent
of base rates.
(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 workers’ 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 workers production exceeds 66-2/3% of the
standard output, he is paid bonus as per the following table:
Efficiency Level Bonus
2
Upto 66 % Nil
3
2
Above 66 % to 79% 10%
3
80% - 99% 20%
100% - 125% 45%
Your assistant has produced the following schedule pertaining to certain workers of a weekly
pay roll:

© The Institute of Chartered Accountants of India

 Labour 3.27

Workers Wage Incentive Plan Total Down Units Standard Base Gross
Hours Time Produced Units Rate Wages as
Hours (`) per Book
(`)
Rajesh Straight piece work 40 5 400 - 1.80 85
Mohan* Straight piece work 46 - 455 - 1.80 95
John Straight piece work 44 - 425 - 1.80 85
Harish Percentage bonus 40 4 250 200 2.20 120
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 above computation of workers’ wages are correct or
not. Give details.
Answer
Schedule showing the correct figure of minimum wages;
gross wages and wages to be paid.
Workers Wage incentive plan Minimum Gross Gross Wages to be
wages wages wage as paid are
computed per Maximum of:
as per book minimum and
incentive gross
plan computed
wages
(` ) (` ) (` ) (` )
Rajesh Straight piece work 72.00 80.00 85 80.00
(Refer to W. Note 1)
Mohan Straight piece work 88.20 91.00 95 91.00
(Refer to W. Note 2)
John Straight piece work 82.80 85.00 85 85.00
(Refer to W. Note 3)
Harish Percentage bonus 88.00 110.00 120 110.00
(Refer to W. Note 4) plan
Mahesh Emerson 84.00 100.80 93 100.80
(Refer to W. Note 5)
Anil Emerson 80.00 116.00 126 116.00
(Refer to W. Note 6)

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 3.28 Cost Accounting

Working notes:
1. Minimum wages = Total normal hours × rate per hour
= 40 hours × ` 1.80 = ` 72
Gross wages (computed) = No. of units × rate per unit
as per incentive plan = 400 units × ` 0.20 = ` 80
2. Minimum wages = Total normal hours × rate per hour
+ Overtime hours × Overtime rate per hour
= 40 hours × ` 1.80 + 6 hours × ` 2.70
= ` 72 + ` 16.20 = ` 88.20
Gross wages (computed)
as per incentive plan = 455 units × ` 0.20 = ` 91.00
3. Minimum wages = 40 hours × ` 1.80 + 4 hours × ` 2.70
= ` 72 + ` 10.80 = ` 82.80
Gross wages (computed) = 425 units × ` 0.20 = ` 85
as per incentive plan
4. Minimum wages = 40 hours × ` 2.20 = ` 88
Actual production per hour
Efficiency of worker = × 100
Standard production per hour
(250 units/ 40 hours)
= × 100 = 125%
(200 units/40 hours)
Hourly rate = Rate per hour × Efficiency of worker
= ` 2.20 × 125% = ` 2.75
Gross wages (computed)
as per of bonus plan = 40 hours × ` 2.75 = ` 110/-
5. Minimum wages = 40 hours × ` 2.10 = ` 84
(240 units/ 40 hours)
Efficiency of worker = × 100 = 80%
(300 units/40 hours)
Bonus (as per Emerson’s plan) = Total minimum wages × Bonus percentage
= ` 84 × 20% = ` 16.80

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 Labour 3.29

Gross wages (computed)

as per Emerson’s
Efficiency plan = Minimum wages + Bonus
= ` 84 + ` 16.80 = ` 100.80
6. Minimum wages = 40 hours × ` 2 = ` 80
600
Efficiency of worker = × 100 = 120%
500
Bonus (as per Emerson’s plan) = ` 80 × 45% = ` 36
Gross wages (computed)
as per Emerson’s Efficiency plan = ` 80 + ` 36 = ` 116
Question 26
The existing Incentive system of Alpha Limited is as under:
Normal working week 5 days of 8 hours each plus 3 late shifts of 3
hours each
Rate of Payment Day work: ` 160 per hour
Late shift: ` 225 per hour
Average output per operator for 49-hours week 120 articles
i.e. including 3 late shifts
In order to increase output and eliminate overtime, it was decided to switch on to a system of
payment by results. The following Information is obtained:
Time-rate (as usual) : ` 160 per hour
Basic time allowed for 15 articles : 5 hours
Piece-work rate : Add 20% to basic piece-rate
Premium Bonus : Add 50% to time.
Required:
(i) Prepare a Statement showing hours worked, weekly earnings, number of articles
produced and labour cost per article for one operator under the following systems:
(a) Existing time-rate
(b) Straight piece-work
(c) Rowan system
(d) Halsey premium system
Assume that 135 articles are produced in a 40-hour week under straight piece work,
Rowan Premium system, and Halsey premium system above and worker earns half the
time saved under Halsey premium system.

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 3.30 Cost Accounting

Answer
Table showing Labour Cost per Article
Method of Payment Hours Weekly Number of articles labour cost
worked earnings produced per article
Existing time rate 49 ` 8,425.00 120 ` 70.21
Straight piece rate system 40 ` 8,640.00 135 ` 64.00
Rowan Premium System 40 ` 9,007.41 135 ` 66.72
Halsey Premium System 40 ` 8,600.00 135 ` 63.70
Working Notes:
Existing time rate
Weekly wages 40 hrs @ ` 160/hr = ` 6,400
9 hrs @ ` 225/hr = ` 2,025
` 8,425
Piece Rate System
Basic time: 5 hour for 15 articles.
Cost of 15 articles at hourly rate of ` 160/hr = ` 800
Add 20% = ` 160
` 960
∴ Rate per article = ` 960 / 15
= ` 64
Earnings for the week = 135 articles × ` 64
= ` 8,640.
Rowan Premium System
Basic Time : 5 hours for 15 articles
Add : 50% to time
7.5 hours for 15 articles
Or 30 minutes per article
∴ Time allowed for 135 articles = 67.5 hours
Actual time taken for 135 articles = 40 hours
⎡ TA − HW ⎤
∴ Earnings = (HW×RH) + ⎢ × HW × RH⎥
⎣ TA ⎦
⎛ 67.5 − 40 ⎞
= (40 hrs × ` 160) + ⎜ × 40 × ` 160 ⎟ = ` 9007.41
⎝ 67.5 ⎠

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 Labour 3.31

Halsey Premium System

50
Earnings = HW×RH + (TA – HW) × RH
100
1
= 40 × ` 160 + (67.5 – 40) × ` 160 = ` 8,600.
2
Question 27
‘Under the Rowan Premium Bonus system, a less efficient worker can obtain same bonus as a
highly efficient worker.’ Discuss with suitable examples
Answer
Time taken
Bonus under Rowan system = × time saved × rate per hour
Time allowed
For example let time allowed for a job = 4 hours and Labour rate = ` 5 per hour.
Case I : Less efficient worker
If time taken = 3 hours
Then time saved = 4 – 3 = 1 hour
3 hours
Bonus = × 1 hour × ` 5 = ` 3.75
4 hours
Case II : Highly efficient worker
If time taken = 1 hour
Then time saved = 4 – 1 = 3 hours
1 hour
Bonus = × 3 hours × ` 5 = ` 3.75
4 hours
So, it can be concluded that under Rowan System, the less efficient worker and highly efficient
worker can get the same bonus.
Question 28
Two workers ‘A’ and ‘B’ produce the same product using the same material. Their normal
wage rate is also the same. ‘A’ is paid bonus according to Rowan scheme while ‘B’ is paid
bonus according to Halsey scheme. The time allowed to make the product is 50 hours. ‘A’
takes 30 hours while ‘B’ takes 40 hours to complete the product. The factory overhead rate is
` 5 per person-hour actually worked. The factory cost of product manufactured by ‘A’ is `
3,490 and for product manufactured by ‘B’ is ` 3,600.
Required:
(i) Compute the normal rate of wages.

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 3.32 Cost Accounting

(ii) Compute the material cost.

(iii) Prepare a statement comparing the factory cost of the product as made by two workers.
Answer
Let x be the cost of material and y be the normal rate of wage/hour
Worker A Worker B
(`) (`)
Material cost x x
Labour wages 30 y 40 y
Bonus Rowan system Halsey system
Time saved Hours saved × 50% × rate
× hour worked × rate
Time allowed
20 1
= × 30 × y = 12y = 10 × × y = 5y
50 2
Overheads 30 × 5 = 150 40 × 5 = 200
Factory cost x + 42y + 150 = 3,490 x + 45y + 200 = 3,600
∴ x + 42y = 3,340 – (1) ∴ x + 45y = 3,400 – (2)

Solving (1) and (2) we get

X = 2,500 and y = 20
(i) Normal rate of wages is ` 20 per hour.
(ii) Cost of materials = ` 2,500.
(iii) Comparative Statement of factory cost
Worker A Worker B
(`) (`)
Material cost 2,500 2,500
Wages 30 × 20 = 600 40 × 20 = 800
Bonus ⎛ 20 ⎞ ⎛ 1 ⎞
⎜ × 30 × 20 ⎟ = 240 ⎜ 10 × × 20 ⎟ = 100
⎝ 50 ⎠ ⎝ 2 ⎠
Overheads 30 × 5 = 150 40 × 5 = 200
Factory cost 3,490 3,600
Question 29
Calculate the total wages earned by a workman for a working day of 8 hours under Halsey and
Rowan Plans:
¾ Standard production per hour 20 units

© The Institute of Chartered Accountants of India

 Labour 3.33

¾ Actual production of the day 200 units

Wages rate per hour ` 30
Answer
200
(i) Standard time = = 10 hours
20
(ii) Total wages of workman in Halsey Scheme:
Total Wages = (Actual Time × Wages Rate) + 50% (Standard Time – Actual
Time) × Wages Rate
50
= 8 × 30 + (10 – 8) × 30 = ` 270
100

(iii) Total wages in Rowan Plan:

⎛ Standard Time − Actual Time ⎞
Total Wages = (Actual Time × Wages Rate) + ⎜ ⎟ × Actual time × Wages Rate
⎝ Standard Time ⎠
⎛ 10 − 8 ⎞
= 8 × 30 + ⎜ ⎟ × 8× 30 = ` 288.
⎝ 10 ⎠
Question 30
The following information is collected from the personnel department of ST limited for the year
ending 31st March, 2008:
Number of workers at the beginning of the year 8,000
Number of workers at the end of the year 9,600
Number of workers left the company during the year 500
Number of workers discharged during the year 100
Number of workers replaced due to left and discharges 700
Additional workers employed for expansion during the year 1,500
You are required to calculate labour turnover rate by using separation method, replacement
method and flux method
Answer
Calculation of labour turnover rate:
1. Separation method:
Number of workers separated during the year
Labour turnover rate = × 100
Average number of workers on rolls during the year

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 3.34 Cost Accounting

600
= × 100 = 6.82%.
8,800
Average Number of workers separated during the year
=Number of workers left the company during the year + Number of workers discharged
during the year
= 500 + 100 = 600.
8,000 + 9,600
Average number of workers on rolls during the year = = 8,800
2
2. Replacement Method:
Number of workers replaced during the year
Labour turnover rate = × 100
Average number of workers on rolls during the year
700
= × 100 = 7.95%.
8,800
3. Flux Method:
Number of workers separated + Number of workers replaced
Labour turnover rate = × 100
Average number of workers on rolls during the year
600 + 700
= × 100 = 14.77%.
8,800
Question 31
Using Taylor’s differential piece rate system, find the earning of A from the following
particulars:
Standard time per piece 12 minutes
Normal rate per hour (in a 8 hours day) ` 20
A produced 37 Units

Answer
⎛ 8 × 60 ⎞
Standard output per day ⎜ ⎟ = 40 units
⎝ 12 ⎠
Actual output = 37 units
37
Efficiency percentage × 100 = 92.5%
40

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 Labour 3.35

Under this method lower rate is 83% of the normal piece rate and is applicable if efficiency of
worker is below 100%.
20
Earning rate per unit = 83% of or 3.32 per unit
5*
Earning = 37 × 3.32 = ` 122.84
60 minutes
* In one hour, production will be = = 5 units
standard time per peice, i.e. 12 minutes
Question 32
Enumerate the various methods of Time booking
Answer
The various methods of time booking are:
(a) Job ticket.
(b) Combined time and job ticket.
(c) Daily time sheet.
(d) Piece work card.
(e) Clock card.
Question 33
Enumerate the remedial steps to be taken to minimize the labour turnover.
Answer
The following steps are useful for minimizing labour turnover:
(a) Exit interview: An interview be arranged with each outgoing employee to ascertain the
reasons of his leaving the organization.
(b) Job analysis and evaluation: to ascertain the requirement of each job.
(c) Organisation should make use of a scientific system of recruitment, placement and
promotion for employees.
(d) Organisation should create healthy atmosphere, providing education, medical and
housing facilities for workers.
(e) Committee for settling workers grievances.
Question 34
Standard output in 10 hours is 240 units; actual output in 10 hours is 264 units. Wages rate is
` 10 per hour. Calculate the amount of bonus and total wages under Emerson Plan.

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 3.36 Cost Accounting

Answer
264
Efficiency percentage = × 100 = 110%
240
As per Emerson plan, in case of above 100% efficiency bonus of 20% of basic wages plus 1%
for each 1% increase in efficiency is admissible.
So, new bonus percentage = 20 + (110 – 100) = 30
30
Total Bonus = (hours worked × rate per hour)
100
30
= × 10 × 10 = ` 30
100
Total wages = ` (10 × 10) + 30 = ` 130.
Question 35
Describe briefly, how wages may be calculated under the following systems:
(i) Gantt task and bonus system
(ii) Emerson’s efficiency system
(iii) Rowan system
(iv) Halsey system
(v) Barth system.
Answer
(i) Gantt task and bonus system: As per this system a higher standard is set and payment
is made at time rate to a worker for production below the standard. If the standards are
achieved or exceeded, the payment is made at a higher piece rate. The piece rate fixed
also includes an element of bonus to the extent of 20%. Bonus is calculated over the
time rate.
(ii) Emerson’s Efficiency System: Under this system wages may be calculated as below:
Performance Wages
Below 66⅔% efficiency − Time rate without any bonus
66⅔% - 100% efficiency − Bonus varies between 1% to 20%*
Above 100% efficiency − Bonus of 20% of basic wages plus
1% for every 1% increase in efficiency.
*At 100% efficiency the bonus percentage will be 20%.
(iii) Rowan System: As per this system standard time allowance is fixed for the performance
of a job and bonus is paid if time is saved.

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 Labour 3.37

time saved
Wages under Rowan System = (Time taken × rate per unit of time ) +
time allowed
× time taken × rate per unit of time
(iv) Halsey System: Under this system a standard time is fixed for each job. If there is no
saving on this standard time allowance, the worker is paid only his day rate.
Wages under Halsey System = Time taken × Time rate + (50% of time saved × time rate)
(v) Barth System:
Earnings under Barth System = Hourly rate × Standard hours × Hours worked
This is particularly suitable for trainees and beginners and also for unskilled workers
Question 36
Two workmen, A and B, produce the same product using the same material. A is paid bonus
according to Halsey plan, while B is paid bonus according to Rowan plan. The time allowed to
manufacture the product is 100 hours. A has taken 60 hours and B has taken 80 hours to
complete the product. The normal hourly rate of wages of workman A is ` 24 per hour. The
total earnings of both the workers are same. Calculate normal hourly rate of wages of
workman B.
Answer
A B
Time Allowed (Hrs.) 100 100
Time Taken (Hrs.) 60 80
Time Saved (Hrs.) 40 20
Let the rate of wages of the worker B is ` x per hour
Normal Wages 1440 80x
(Time taken × Hourly rate of wages) (60×24)
Bonus 480 16x
⎛ 20 ⎞
(1/2 × 40 × 24) ⎜ ⎟ × (80 × x)
⎝ 100 ⎠
1920 96x
According to the problem,
Total earnings of A = Total earnings of B
1920 = 96x

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 3.38 Cost Accounting

1920
x = = ` 20
96
∴ Hourly rate of wages of the worker is ` 20 per hour.
Alternative Solution:
In case of worker B, in place of x, it can be written as ‘80x hourly rate’.
Hence final equation will be
96 x hourly rate = 1920
1920
Hourly rate of B = = ` 20
96
Question 37
Discuss accounting treatment of idle capacity costs in cost accounting.
Answer
Treatment of Idle Capacity Cost
(a) If idle capacity is due to unavoidable reasons such as repairs & maintenance, change
over of job etc., a supplementary overhead rate may be used to recover the idle capacity
cost. In this case, the costs are charged to production capacity utilized.
(b) If idle capacity cost is due to avoidable reasons such as faulty planning, power failure
etc, the cost should be charged to P/L A/c.
(c) If idle capacity is due to seasonal factors, then the cost should be charged to cost of
production by inflating overhead rates.
Question 38
Standard Time for a job is 90 hours. The hourly rate of guaranteed wages is ` 50. Because of
the saving in time a worker A gets an effective hourly rate of wages of ` 60 under Rowan
premium bonus system. For the same saving in time, calculate the hourly rate of wages a
worker B will get under Halsey premium bonus system assuring 40% to worker.
Answer
Increase in Hourly Rate of Wages (Rowan Plan) is (` 60 – ` 50) = ` 10
This is Equal to
Time Saved
× Hourly rate
S tan dard Time
Time Saved
Or 10 = × 50
S tan dard Time

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 Labour 3.39

Time Saved
Or × 50 = 10
90
900
Time Saved = = 18 Hours
50
Time Taken = (90 – 18) = 72 Hours
Effective Hourly Rate under Halsey System
Time Saved = 18 Hours
Bonus @ 40% = 18 × 40% × 50 = ` 360
Total Wages = (50 × 72 + 360) = 3,960
Effective Hourly Rate = 3,960 ÷ 72 Hours = ` 55
Question 39
You are given the following information of a worker:
(i) Name of worker : ‘X’
(ii) Ticket No. : 002
(iii) Work started : 1-4-11 at 8 a.m.
(iv) Work finished : 5-4-11 at 12 noon
(v) Work allotted : Production of 2,160 units
(vi) Work done and approved : 2000 units
(vii) Time and units allowed : 40 units per hour
(viii) Wage rate : ` 25 per hour
(ix) Bonus : 40% of time saved
(x) Worker X worked 9 hours a day.
You are required to calculate the remuneration of the worker on the following basis:
(i) Halsey plan and
(ii) Rowan plan
Answer
No. of units produced and approved = 2,000
Standard time = 40 units per hour
Hourly Wage Rate = ` 25
Time allowed = 40 units per hour

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 3.40 Cost Accounting

2,000
Time allowed for 2,000 units = 50 hours
40
(i) Calculation of Remuneration under Halsey Plan:
Standard time allowed for 2,000 units : 50 hours
Actual time taken for 2,000 units : 40 hours
Time saved 10 hours
Basic wages for time taken 40 hours @ ` 25 = ` 1,000
40
Bonus: 40% of time saved ×10× 25 =` 100
100
Total ` 1,100
(ii) Calculation of Remuneration Under Rowan Plan:
Wages for time taken 40 hours @ ` 25 = ` 1,000
Time saved
Bonus = x (Time Taken x Hourly Rate)
Time allowed
40 × 10 × 25
= = ` 200
50
Total ` 1,200
Question 40
Enumerate the causes of labour turnover.
Answer
Causes of Labour Turnover: The main causes of labour turnover in an organisation/ industry
can be broadly classified under the following three heads:
(a) Personal Causes;
(b) Unavoidable Causes; and
(c) Avoidable Causes.
Personal causes are those which induce or compel workers to leave their jobs; such causes
include the following :
(i) Change of jobs for betterment.
(ii) Premature retirement due to ill health or old age.
(iii) Domestic problems and family responsibilities.
(iv) Discontent over the jobs and working environment.

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 Labour 3.41

Unavoidable causes are those under which it becomes obligatory on the part of management
to ask one or more of their employees to leave the organisation; such causes are summed up
as listed below:
(i) Seasonal nature of the business;
(ii) Shortage of raw material, power, slack market for the product etc.;
(iii) Change in the plant location;
(iv) Disability, making a worker unfit for work;
(v) Disciplinary measures;
(vi) Marriage (generally in the case of women).
Avoidable 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. The main causes under this case
are indicated below
(i) Dissatisfaction with job, remuneration, hours of work, working conditions, etc.,
(ii) Strained relationship with management, supervisors or fellow workers;
(iii) Lack of training facilities and promotional avenues;
(iv) Lack of recreational and medical facilities;
(v) Low wages and allowances.
Question 41
X executes a piece of work in 120 hours as against 150 hours allowed to him. His hourly rate
is ` 10 and he gets a dearness allowance @ ` 30 per day of 8 hours worked in addition to his
wages. You are required to calculate total wages received by X under the following incentive
schemes:
(i) Rowan Premium Plan, and
(ii) Emerson's Efficiency Plan
Answer
(i) Rowan Premium Plan `
Normal wages (10 x 120) 1,200
D.A. for 15 days (30 x 15 ) 450
Bonus :
120×30
Bonus hours = = 24 Hours
150
Bonus (24 x 10) 240

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 3.42 Cost Accounting

Total Wages = 1890

(ii) Emersion`s Efficiency Plan Normal Wages
Normal wages 1200
D.A. (15 x 30) 450
Time Allowed
Bonus : = ×100
Time Taken
150
Efficiency % = ×100 = 125 %
120
Rate of Bonus up to 100% = 20%
From 101% to 125% = 25%
45%
⎛ 45 ⎞
Bonus being 45% normal wages ⎜ 100 ×1200 ⎟ = 540
⎝ ⎠
Total Wages = 2190
Question 42
The management of a company wants to formulate an incentive plan for the workers with a
view to increase productivity. The following particulars have been extracted from the books of
company:
Piece Wage rate ` 10
Weekly working hours 40
Hourly wages rate ` 40 (guaranteed)
Standard/normal time per unit 15 minutes.
Actual output for a week:
Worker A 176 pieces
Worker B 140 pieces

Differential piece rate: 80% of piece rate when output below normal and 120% of piece rate
when output above normal.
Under Halsey scheme, worker gets a bonus equal to 50% of Wages of time saved.
Calculate:
(i) Earning of workers under Halsey’s and Rowan’s premium scheme.

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 Labour 3.43

(ii) Earning of workers under Taylor’s differential piece rate system and Emerson’s efficiency
plan.
Answer
Calculation of earnings for workers under different incentive plans:
(i) Halsey’s Premium Plan: Worker – A Worker – B
Actual time taken 40 hours 40 hours

Standard time for actual 176 Pcs × 15 Min. 140 Pcs × 15 Min.
Production 60 Min.
60 Min.
= 35 hours
= 44 hours
Minimum Wages 40 hours x ` 40 40 hours x ` 40
= ` 1600 = ` 1600

Bonus 50% (44-40) x `40 No bonus

= ` 80
Earning ` 1680 ` 1600
Rowan’s Premium Plan:
Minimum Wages (as above) ` 1600 ` 1600
Bonus 4 No bonus
44 × 40 × ` 40
= ` 145.45
Earning ` 1745.45 ` 1600
(ii) Taylor’s differential Piece rate
Efficiency 176 140
160 ×100 160 ×100
= 110% = 87.5%
Earning `10x120%x176 Pcs `10x80%x140Pcs
= ` 2112 ` 1120
Emerson’s efficiency Plan
Time Wages ` 40x40 hours ` 40x40 hours
= 1600 = 1600
Bonus (20%+10%) of 20% of 1600
(40x40) = 320
= 480
Earning ` 2080 ` 1920

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 3.44 Cost Accounting

Question 43
Accountant of your company had computed labour turnover rates for the quarter ended 30th
September, 2012 as 14%, 8% and 6% under Flux method, Replacement method and
Separation method respectively. If the number of workers replaced during 2nd quarter of the
financial year 2012-13 is 36, find the following:
(i) The number of workers recruited and joined; and
(ii) The number of workers left and discharged.
Answer
No. of wor ker s replaced
Labour Turnover Rate (Replacement method) =
Average No. of wor ker s
8 36
or, =
100 Average No. of wor ker s
or, Average No. of workers = 450
No. of workers separated
Labour Turnover Rate (Separation method) =
Average No. of workers
6 No. of workers separated
or, =
100 450
or, No. of workers separated = 27
No. of Separations + No. of accession (Joinings)
Labour Turnover Rate (Flux Method) =
Average No. of wor ker s
14 27 + No. of accessions (Joinings)
or, =
100 450
or, 100 (27 + No. of Accessions) = 6300
or, No. of Accessions = 36
(i) The No. of workers recruited and Joined = 36
(ii) The No. of workers left and discharged = 27
Question 44
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 ` 100 160

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 Labour 3.45

(ii) Dearness Allowance 50% 50%

(iii) Contribution to provident Fund (on basic wages) 8% 8%
(iv) Contribution to Employee’s State Insurance (on basic wages) 2% 2%
(v) Overtime Hours 10
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 with employees contributions. The two workers were
employed on 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.

Answer
Statement showing Earnings of Workers A and B
Workers A B
(`) (`)
Basic Wages 100 160
Dearness Allowance (50% of Basic Wages) 50 80
Overtime Wages (Refer to Working Note 1) 15 -
Gross Wages earned 165 240
Less: Provident Fund – 8% of Basic Wages
– ESI – 2% of Basic Wages = Total 10% of basic Wages 10 16
Net Wages paid 155 224
Statement of Labour Cost
Gross Wages (excluding overtime) `150 240
Employers contribution to P.F. and E.S. I. 10 16
160 256
Ordinary wages Labour Rate per hour 0.80 1.28
(` 160/200) (` 256/200)

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 3.46 Cost Accounting

Statement Showing Allocation of Wages to Jobs

Total Jobs
Wages
X Y Z
Worker A
Ordinary Wages (4:3:3) 160 64 48 48
Overtime 15 -- 15 --
Worker B
Ordinary Wages(5:2:3) 256 128 51.20 76.80
431 192 114.20 124.80
Working Notes
1. Normal Wages are considered as basic wages
2 x (Basic wage + D.A.) x10hours
Over time =
200
`150
= 2x x10 hours
200
= 1.50 × 10 hours = `15
Question 45
If the ‘activity ratio’ and ‘capacity ratio’ of a company is 104% and 96% respectively, find out
its ‘efficiency ratio’.
Answer
Efficiency Ratio can be obtained by dividing the activity ratio by capacity ratio as follows:-
Activity ratio
Efficiency Ratio = x100
Capacity ratio
104%
= x100 = 108.33%
96%
The inter – relationship is shown below:
Std.hours for actualproduction
Activity Ratio = x100
BudgetedHours
Actual workinghours
Capacity ratio = x100
Budgeted hours
Std.hours for actualproduction
Efficiency ratio = x100
Actualhours worked

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 Labour 3.47

Activity Ratio
i.e. Efficiency Ratio =
Capacity Ratio
Std.hours for actualproduction Budgeted hours
= x
Budgeted hours Actualhours worked
Std.hours for actualproduction
= x100
Actualhours worked
Activity Ratio = Capacity Ratio × Efficiency Ratio
Question 46
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 0.65
2 25 minutes B 0.50
3 10 minutes C 0.40
4 30 minutes D 0.35
5 20 minutes E 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 operations
required, the labour cost per dozen and the total labour cost per week to produce the total
targeted output.
Answer
Statement of number of operators required and labour cost per dozen and per week.
Production target is 600 dozens per week.
Operation No.
Particulars Total
1 2 3 4 5
15 25 10 30 20
Time per article (minutes)

Total time in hours for

prodn. of 600 dozens
600 × 12 × 15
= 1,800 3,000 1,200 3,600 2,400
60
No. of operators = 45 75 30 90 60 300

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 3.48 Cost Accounting

Labour cost per dozen

15 × 12
=3
60 1.95 2.50 0.80 2.10 1.20 8.55
hours at ` 0.65 =
labour cost per week (`)
1.95 × 600 dozens 1,170 ,500 480 1,260 720 5,130

EXERCISE

1 Distinguish between Idle Time and Idle Facilities. How are they treated in Cost Accounts? Develop a system
of control for Idle Time in a factory.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
2 What do you understand by Labour Turnover? How is it measured? What are its causes? What are the
remedial steps you would suggest to minimize its occurrence?
Labour Utilisation Statement
Department……………………….... Week
Ending…………………………….
Standard Time Causes

Sl. Category Number Output Time Standard Idle Break- Power Lack of Lack of Set Ineffi- Etc.

in time for Time down Failure Material planning up

No. of of hours Per ciency
Units Output (3-6) time
Workers paid for Unit of
Output

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Cost Accountant ……………………

Action taken ……………….……… ………………………….
…………………………………….. Department Supdt.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
3 What do you understand by Overtime Premium?
What is the affect of overtime payment on productivity and cost?
Discuss the treatment of overtime premium in cost accounts and suggest a procedure for control of overtime
work.

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 Labour 3.49

Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material

4. What are piece-rate? What advantage and disadvantages are attributed to their use? What principles should
govern the determination and revision of piece-rates?
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
5 Define job evaluation and distinguish it from merit rating. Explain the methods and objectives of job evaluation.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
6 What do you understand by time and motion study? Explain how standard time is set under time study.
State how time and motion study is useful to management.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
7 List down the factors to be considered before introducing a scheme of incentive to workers.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
8 Distinguish between Casual worker and Outworker
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
9 Discuss the three methods of calculating labour turnover
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
10 Discuss the Gantt task and bonus system as a system of wage payment and incentives.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
11 Discuss two types of Costs, which are associated with labour turnover
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
12 Discuss the accounting treatment of Idle time and overtime wages.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
13 Discuss briefly, how will you deal with casual workers and workers employed on outdoor work in Cost
Accounts.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
14 What is the impact of ‘Labour Turnover’ on a manufacturing organisation’s working?
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
15 In a unit, 10 men work as a group. When the production for the group exceeds the standard output of 200
pieces per hour, each man is paid an incentive for the excess production in addition to his wages at hourly
rates. The incentive is at half the percentage, the excess production over the standard bears to the standard
production, Each man is paid an incentive at the rate of this percentage of a wage rate of ` 2 per hour.
There is no relation between the individual workman’s hourly rate and the bonus rate.
In a week, the hours worked are 500 hours and the total production is 1,20,000 pieces.
(a) Compute the total amount of the bonus for the week.
(b) Calculate the total earnings of two workers A and B of the group:-
A worked 44 hours and his basic rate per hour was ` 2.20.
B worked 48 hours and his basic rate per hour was ` 1.90.

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 3.50 Cost Accounting

Answer (a) Total amount of bonus for the week = ` 100.

(b) Total Earning of A (` ) 105.60
Total Earning of B (` ) 100.80
16 What are the main features of Halsey and Rowan method of payment of remuneration? State how Rowan
Scheme is better than Halsey Scheme. Given time allowed of 30 hours for a job and the wage rate of `
1.00 per hour, illustrate your answer by assuming your own figure for time taken to do the job
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
17 The cost accountant of Y Ltd. has computed labour turnover rates for the quarter ended 31st March, 1997 as
10%, 5% and 3% respectively under Flux method, ‘Replacement method’ and ‘Separation method’. If the
number of workers replaced during that quarter is 30, find out the number of (1) workers recruited and
joined and (2) workers left and discharged.
Answer No. of workers recruited and joined 42
Number of workers left and discharged comes to 18.
18 Distinguish between Job Evaluation and Merit Rating
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
19 A worker produced 200 units in a week’s time. The guaranteed weekly wage payment for 45 hours is ` 81.
The expected time to produce one unit is 15 minutes which is raised further by 20% under the incentive
scheme. What will be the earnings per hour of that worker under Halsey (50% sharing) and Rowan bonus
schemes?
Answer Earning per hour under Halsey (50% sharing) Bonus Scheme ` 2.10 per hour
Earnings per hour under Rowan Bonus Scheme ` 2.25 per hour
20 Write short note on Labour Turnover.
Answer Refer to ‘Chapter No. 3 i.e. Labour’ of Study Material
21 A job can be executed either through workman 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 ` 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.
Answer The wage rate per hour is ` 10
The cost of raw material input is ` 2,000 on the job.
22 The management of Sunshine Ltd. wants to have an idea of the profit lost/foregone as a result of labour
turnover last year.
Last year sales accounted to ` 66,000,000 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 to labour turnover, 75,000 potential productive hours were lost. The actual direct

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 Labour 3.51

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 reveled on analysis the following:
`
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.
Answer Total profit foregone (` ) 3,75,000
23 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 ` 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.
Answer Earnings of Workers Under Straight Piece Rate System
Worker A = ` 35.10
Worker B = ` 40.50
Worker C = ` 54.00
Earnings of Workers Under Merrick’s Multiple Piece Rate System
A B C
Earnings (` ) 35.10 44.55 64.80
24 Calculate the earnings of a worker under (i) Halsey Plan and (ii) Rowan Plan from the following particulars:
(1) Hourly rate of wages guaranteed 0.50 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.
Answer (i) Earnings of a Worker under Halsey Plan ` 27
(ii) Earnings of a worker under Rowan Plan ` 28.80
25 Calculate the number of hours worked as overtime by the following workers in a week:
Ram Shyam
Monday 8 8

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 3.52 Cost Accounting

Tuesday 7 9
Wednesday 4.5 8
Thursday 8 7
Friday 10 9
Saturday 9 9
46.5 50
Answer Ram 1 hour; Shyam 2 hours
26 Three workers A, B and C are put on a common task for which the total remuneration is ` 150. A works for
40 hours, B works for 60 hours and C works for 44 hours on the job. The hourly rate is Re. 0.75 of A per
hour, B gets Re. 0.80 per hour while C’s remuneration is Re. 0.50 per hour. What should each man get ?
Answer A. ` 45; B. ` 75; C. ` 33.
27 A worker is paid @ 50 paise per hour plus a dearness allowance of ` 60 per month. The provident fund
contribution both by the employee and the worker is 6¼% each. The worker is entitled to 15 days leave with
full wages. His normal working per month is 25 days of 8 hours each. Calculate
(a) the wages per hour for costing purposes; and
(b) the amount to be paid to him for a week in which he puts in 52 hours of work.
Answer ` 0.895 per hour for costing purposes, ` 42.40
(amount to be paid, deducting ` 2.40 for PF).
28 The following particulars are available to you in respect of a worker:
Job No. Time Allowed Time Taken
1844 26 hours 20 hours
1826 30 hours 20 hours
Idle time (waiting) 8 hours 48 hours
The basic rate is ` 2 per day of 8 hours in addition there is a dearness allowance of ` 12 per week of 48
hours. Calculate the wage of the worker on (1) Time Basis (2) Piece Rate Basis (3) Halsey Plan Basis and
(4) Rowan Plan Basis.
Answer (1) ` 24; (2) ` 28; (3) ` 26; (4) ` 26-86.
29 A worker is paid 10% bonus on the hourly rate if he completes his work in the time allotted for it and a
further 1% on hourly rate for each 1% in excess of 100% efficiency. His hourly rate is ` 5 per hour and he
completed a job in 45 hours whereas the time allowed for it was 50 hours. Ascertain the wages earned by
this worker.
Answer ` 270
30 From the following data, calculate the labour turnover rate by applying :
(i) Separation method
(ii) Accession method
(iii) Flux method

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 Labour 3.53

Number of workers on the payroll

At the beginning of the month 1,800
At the end of the month 2,200
During the month 20 workers left, 80 workers were discharged and 500 workers were recruited. Of these 50
workers were recruited in the vacancies of those separated, while the rest were engaged due to expansion.
Answer (i) 5%; (ii) 25%; (iii) 30%.
31 The company has a suggestion of box scheme and an award equivalent to one and a half months saving in
labour cost is passed on to the employee whose suggestion is accepted. Suggestion of an employee to use
a Jig for a manufacturing operation of a component is accepted. The cost of the Jig which has a life of one
year is ` 1,000 and the use of the Jig will reduce the standard time by 8 minutes.
Compute from the following data the amount of award payable to the employee who has given the
suggestion.
(i) Number of pieces to be produced in the year : 15,000
(ii) Standard time per piece before use of Jig : 80 minutes
(iii) Average wage rate of workmen ` 160 per day of 8 hours.
(iv) Average efficiency of workmen : 80%.
Answer ` 6,250
32 The existing incentive system of a certain factory is :
Normal working week : 5 days of 9 hours each plus Resorting to overtime of 3 hours for 3 days.
Rate of payment : For day work - ` 20 per hour. For overtime - ` 30 per hour.
Additional bonus payable : ` 25 per day if worker is not resorting to overtime.
` 40 per day if worker resorts to overtime.
Average output per operative :
for 54 hour week, i.e, normal
working hours plus 3 hours
late sitting for 3 days 120 articles
In order to increase output and eliminate overtime it was decided to switch on to a system of payment by
resaults. The factory considering the introduction of some incentive scheme or to make payment on piece
work basis. Assuming that 135 articles are produced in a 45 hour week and the additional bonus under the
existing system will be discontinued in the proposed incentive scheme. You are required to calculate :
(i) Weekly earnings; (ii) labour cost per article for an operative under the following systems:
(a) Existing time-rate system
(b) Straight piece-work system
(c) Rowan system
(d) Halsey system
The following information is obtained.
Time rate (as usual) : ` 20 per hour

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 3.54 Cost Accounting

Basic time allowed : for 15 articles 5 hours

Piece work rate : Add 20% to price
Premium bonus : Add 50% to time
Answer (a) (i) ` 1,340 (ii) ` 11.17
(b) (i) ` 1,080 (ii) ` 8.00
(c) (i) ` 1,200 (ii) ` 8.88
(d) (i) ` 1,125 (ii) ` 8.33.
33 The unit has a strength of 20 workmen worked for 300 working days of 8 hours each with half an hour break
based on the earlier years trend, it is forecast that average absenteeism per workman would be 8 days, in
addition to the eligibility of 30 days annual leave.
The following details regarding actual working of the unit are available for the year ending on 31st March,
1998.
(i) The factory worked 2 extra days to meet the production targets, but one additional paid holiday had to
be declared.
(ii) There was a severe breakdown of a major equipment leading to a loss of 300 man hours.
(iii) Total overtime hours (in addition to 2 extra days worked) amounted to 650 hours.
(iv) The actual average absenteeism per workman was 8 days.
(v) Basic rate is ` 10 per hour and overtime is paid at double rate. You are required to calculate.
(a) Actual working hours of the unit.
(b) In Cost Accounting how would you treat the wages of workmen for (ii) & (iii) above ?
Answer
(a) ` 39,800 (b) The wages of workmen for (ii) should be charged to Costing Profit and Loss A/c and for
(iii) should be charged to factory overheads.

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