COSTING PRACTICE SHEETS BY- CA NITIN GURU

LABOUR COST & DIRECT EXPENSES- Practice Sheet

Question 1. [STUDY MATERIAL
CALCULATE the earnings of a worker under Halsey System. The relevant data is as below:
Time Rate (per hour) ₹ 60
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours

Solution 1:
Calculation of total earnings:
= Time taken × Time rate + 50% (Time Allowed – Time Taken) × Time rate
= 6 hrs. × ₹ 60 + 1/2 × (2 hrs. × ₹ 60) or ₹ 360 + ₹ 60 = ₹ 420
Of his total earnings, ₹ 360 is on account of the time worked and ₹ 60 is on account of his share of the premium bonus.

Question 2. [STUDY MATERIAL

CALCULATE the earnings of a worker under Rowan System. The relevant data is given as below:
Time rate (per Hour) ₹ 60
Time allowed 8 hours
Time taken 6 hours
Time saved 2 hours

Solution 2:
Calculation of total earnings:
= Time taken × Rate per hour + Time Saved × Time taken × Rate per hour
Time Allowed

= 6 hours × ₹ 60 + 2 hours × 6 hours × ₹ 60 = ₹ 360 + ₹ 90 = ₹ 450

8 hours

Question 3. [STUDY MATERIAL

The time allowed for a job is 8 hours. The hourly rate is ₹ 8. PREPARE a statement showing:
i. The bonus earned
ii. The total earnings of employee and
iii. Hourly earnings.
Under the Halsey System with 50% bonus for time saved and Rowan System for each hour saved progressively.

Solution 3:
Statement of Bonus, total earnings of Employee and hourly earnings under Halsey and Rowan Systems.

SH AH Time Basic Bonus Bonus Total Total Hourly Hourly

Saved Wages under Under earnings earnings earnings earnings
(AH x ₹ 8) Halsey Rowan under under under under
(B x ₹ 8) System system Halsey Rowan Halsey Rowan
[50xCx8] [B x C x 8] System system system system
100 A D+E D+F G/B H/B
A B C= (A-B) D E F G H I J
Hours Hours Hours ₹ ₹ ₹ ₹ ₹ ₹
8 8 - 64 - - 64 64 8.00 8.00
8 7 1 56 4 7 60 63 8.57 9.00
8 6 2 48 8 12 56 60 9.33 10.00
8 5 3 40 12 15 52 55 10.40 11.00
8 4 4 32 16 16 48 48 12.00 12.00
8 3 5 24 20 15 44 39 14.67 13.00

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 COSTING PRACTICE SHEETS BY- CA NITIN GURU

8 2 6 16 24 12 40 28 20.00 14.00
8 1 7 8 28 7 36 15 36.00 15.00

Question 4. [STUDY MATERIAL

Wage negotiations are going on with the recognised employees’ union, and the management wants you as an executive
of the company to formulate an incentive scheme with a view to increase productivity.
The case of three typical workers A, B and C who produce respectively 180, 120 and 100 units of the company’s product
in a normal day of 8 hours is taken up for study.
Assuming that day wages would be guaranteed at ` 75 per hour and the piece rate would be based on a standard hourly
output of 10 units, CALCULATE the earnings of each of the three workers and the employee cost per 100 pieces under (i)
Day wages, (ii) Piece rate, (iii) Halsey scheme, and (iv) The Rowan scheme.
Also CALCULATE under the above schemes the average cost of labour for the company to produce 100 pieces.

Solution 4:
Calculation of earnings under different wage schemes:
(i) Day wages:
Worker Day Wages (₹) Actual Output Labour cost per 100
(Units) pieces (₹)
A 600 180 333.33
B 600 120 500.00
C 600 100 600.00
Total 1,800 400

Average labour cost to produce 100 pieces:

= Total wages paid × 100 = ₹ 1,800 × 100 = ₹ 450
Total output 400 units

(ii) Piece rate:

Worker Actual Output Piece rate Wages earned Labour cost per
(Units) (₹) (₹) 100 pieces (₹)
A 180 7.50 1,350 750.00
B 120 7.50 900 750.00
C 100 7.50 750 750.00
Total 400 3,000

Average cost of labour for the company to produce 100 pieces:

= ₹ 3,000 ×100 = ₹ 750
400 its

(iii) Halsey Scheme:

Worker Actual Std. Actual Time Bonus Rate Total wages Labour cost
Output Time Time Saved Hours per (₹) per 100
(Units) (Hrs.) (Hrs.) (Hrs.) (50% of hour pieces (₹)
time (₹)
saved)
A B C D=B-C E F G=F x (C+E) H=G/A*100
A 180 18 8 10 5 75 975 541.00
B 120 12 8 4 2 75 750 625.00
C 100 10 8 2 1 75 675 675.00
Total 400 2400

Average cost of labour for the company to produce 100 pieces

= ₹ 2,400 ×100 = ₹ 600
400 its

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(iv) Rowan Scheme :

Worker Actual Std. Actual Time Bonus Rate Total wages Labour cost
Output Time Time Saved Hours* per including per 100
(Units) (Hrs.) (Hrs.) (Hrs.) hour bonus (₹) pieces (₹)
(₹)
A B C D=B-C E F G=F x (C+E) H=G/A*100
A 180 18 8 10 4.44 75 933 518.33
B 120 12 8 4 2.67 75 800 666.67
C 100 10 8 2 1.60 75 720 720.00
Total 400 2,453

* Bonus hours = Time Saved × Actual time

Std. Time

Average cost of labour for the company to produce 100 pieces

= ₹ 2,453 ×100 = ₹ 613.25
400 units

Question 5. [RTP MAY 2021]

JBL Sisters operates a boutique which works for various fashion houses and retail stores. It has employed 26 workers
and pays them on time rate basis. On an average an employee is allowed 8 hours for boutique work on a piece of
garment. In the month of December 2020, two workers M and J were given 15 pieces and 21 pieces of garments
respectively for boutique work. The following are the details of their work:
M J
Work assigned 15 pcs. 21 pcs.
Time taken 100 hours 140 hours
Workers are paid bonus as per Halsey System. The existing rate of wages is Rs. 60 per hour. As per the new wages
agreement the workers will be paid Rs. 72 per hour w.e.f. 1st January2021.
At the end of the month December 2020, the accountant of the company has wrongly calculated wages to these two
workers taking Rs. 72 per hour.
Required:
(i) CALCULATE the loss incurred due to incorrect rate selection.
(ii) CALCULATE the loss incurred due to incorrect rate selection, had Rowan scheme of bonus payment followed.
(iii) CALCULATE the loss/ savings if Rowan scheme of bonus payment had followed.
(iv) DISCUSS the suitability of Rowan scheme of bonus payment for JBL Sisters?

Solution 5:
Workings Notes:
Calculation of Total hours saved:
M J
No. of garments assigned (Pieces.) 15 21
Hour allowed per piece (Hours) 8 8
Total hours allowed (Hours) 120 168
Hours Taken (Hours) 100 140
Hours Saved (Hours) 20 28

Calculation of loss incurred due to incorrect rate selection:

(While calculating loss only excess rate per hour has been taken)
M (Rs.) J (Rs.) Total (Rs.)
Basic Wages 1,200 1,680 2,880
(100 Hrs. × Rs.12) (140 Hrs. × Rs. 12)
Bonus [as per Halsey Scheme] 120 168 288
(50% of Time Saved × Excess (50% of 20 Hrs. × Rs.12) (50% of 28 Hrs. × Rs.12)

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Rate)
Excess Wages Paid 1,320 1,848 3,168

Calculation of loss incurred due to incorrect rate selection had Rowan scheme of bonus payment followed:
M (Rs.) J (Rs.) Total (Rs.)
Basic Wages 1,200 1,680 2,880
(100 Hrs. × Rs.12) (140 Hrs. × Rs. 12)
Bonus [as per Rowan Scheme] 200 280 480
[(TimeTaken/TimeAllowed) × [(100/120) × 20 × Rs.12] [(140/168) × 28 × Rs.12]
Time Saved × Excess Rate]
Excess Wages Paid 1,400 1,960 3,360

Calculation of amount that could have been saved if Rowan Scheme were followed:
M (Rs.) J (Rs.) Total (Rs.)
Wages paid under Halsey 1,320 1,848 3,168
Scheme
Wages paid under Rowan 1,400 1,960 3,360
Scheme
Difference (loss) (80) (112) (192)

Rowan Scheme of incentive payment has the following benefits, which is suitable with the nature of business in which
JBL Sisters operates:
Under Rowan Scheme of bonus payment, workers cannot increase their earnings or bonus by merely increasing its work
speed. 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.
If the rate setting department commits any mistake in setting standards for time to be taken to complete the works, the
loss incurred will be relatively low.

Question 6. [RTP NOV 2020]

GZ Ld. pays the following to a skilled worker engaged in production works. The following are the employee benefits paid
to the employee:
Basic salary per day Rs.1,000
Dearness allowance (DA) 20% of basic salary
House rent allowance 16% of basic salary
Transport allowance Rs.50 per day of actual work
Overtime Twice the hourly rate (considers basic and DA), only if
works more than 9 hours a day otherwise no overtime
allowance. If works for more than 9 hours a day then
overtime is considered after 8th hours.
Work of holiday and Double of per day basic rate provided works atleast 4
Sunday hours. The holiday and Sunday basic is eligible for all
allowances and statutory deductions.
Earned leave & Casual leave These are paid leave.
Employer’s contribution to 12% of basic and DA
Provident fund
Employer’s contribution to 7% of basic and DA
Pension fund
The company normally works 8-hour a day and 26-day in a month. The company provides 30 minutes lunch break in
between.
During the month of August 2020, Mr.Z works for 23 days including 15 th August and a Sunday and applied for 3 days of
casual leave. On 15th August and Sunday he worked for 5 and 6 hours respectively without lunch break.
On 5th and 13th August he worked for 10 and 9 hours respectively. During the month Mr. Z worked for 100 hours on Job
no.HT200. You are required to CALCULATE:

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(i) Earnings per day

(ii) Effective wages rate per hour of Mr. Z.
(iii) Wages to be charged to Job no.HT200.

Solution 6:
Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of days
= (8 hours – 0.5 hours) × 26 days = 195 hours

2. Hours worked by Mr.Z = No. of normal days worked + Overtime + holiday/ Sunday worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.

(i) Calculation of earnings per day

Particulars Amount (Rs.)
Basic salary (Rs.1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200
31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × Rs.31,200) 3,744
Employer’s contribution to Pension fund (7% × Rs.31,200) 2,184
41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638

(ii) Calculation of effective wage rate per hour of Mr. Z:

Particulars Amount (Rs.)

Basic salary (Rs.1,000 × 26 days) 26,000
Additional basic salary for Sunday & holiday (Rs.1,000 × 2 days) 2,000
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (Rs.50 × 23 days) 1,150
Overtime allowance (Rs.160 × 2 × 2 hours)* 640
Employer’s contribution to Provident fund (12% × Rs.33,600) 4,032
Employer’s contribution to Pension fund (7% × Rs.33,600) 2,352
Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) /7.5 hours
= (1,000+200) /7.5 = Rs.160 per hour

(iii) Calculation of wages to be charged to Job no. HT200

= Rs. 248 × 100 hours = Rs. 24,800

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Question 7. [RTP MAY 2020]

From the following information, CALCULATE employee turnover rate using – (i) Separation Method, (ii) Replacement
Method, (iii) New Recruitment Method, and (iv) Flux Method:
No. of workers as on 01.01.2019 = 3,600 No. of workers as on 31.12.2019 = 3,790
During the year, 40 workers left while 120 workers were discharged. 350 workers were recruited during the year, of
these 150 workers were recruited because of exits and the rest were recruited in accordance with expansion plans.

Solution 7:
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%

Question 8. [MTP APRIL 2021]

From the following information, CALCULATE employee turnover rate using – (i) Separation Method, (ii) Replacement
Method, (iii) New Recruitment Method, and (iv) Flux Method:
No. of workers as on 01.04.2020 = 3,800 No. of workers as on 31.03.2021 = 4,200
During the year, 40 workers left while 160 workers were discharged and 600 workers were recruited during the year; of
these, 150 workers were recruited because of exits and the rest were recruited in accordance with expansion plans

Solution 8.
(a) 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%

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Question 9. [MTP MARCH 2021]

(a) The labour turnover rates for the quarter ended 30th September, 2020 are computed 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 2020-21 is 36, COMPUTE the following:
(i) The number of workers recruited and joined; and
(ii) The number of workers left and discharged.

Solution 9:
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

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

Question 10. [JAN 2021]

Z Ltd is working by employing 50 skilled workers. It is considering the introduction of an incentive scheme - either Halsey
Scheme (with 50% Bonus) or Rowan Scheme - of wage payment for increasing the labour productivity to adjust with the
increasing demand for its products by 40%. The company feels that if the 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 and the company has accordingly given assurance to the workers.
Because of this assurance, an increase in productivity has been observed as revealed by the figures for the month of
April, 2021
Hourly rate of wages (guaranteed) Rs. 50
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 a 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 increase in earnings of workers in percentage terms under Halsey and Rowan scheme.
(ii) Calculate the savings to Z Ltd in terms of direct labour cost per unit under both the schemes.
(iii) Advise Z Ltd about the selection of the scheme that would fulfil its assurance of incentivising workers and also to
adjust with the increase in demand.

Solution 10.
(a) Working Notes:

1. Total time wages of 50 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
= 24 days × 8 hrs. × Rs. 50 × 50 workers = Rs. 4,80,000

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2. Time saved per month:

Time allowed per unit to a worker 1.975 hours
No. of units produced during the month by 50 workers 6,120 units
Total time allowed to produce 6,120 units (6,120 × 1.975 hrs) 12,087 hours
Actual time taken to produce 6,120 units (24 days × 8 hrs. × 50 workers) 9,600 hours
Time saved (12,087 hours – 9,600 hours) 2,487 hours

3. Bonus under Halsey scheme to be paid to 50 workers:

Bonus = (50% of time saved) × hourly rate of wages
= 50/100 × 2,487 hours × Rs. 50 = Rs. 62,175
Total wages to be paid to 50 workers are (Rs. 4,80,000 + Rs. 62,175) Rs. 5,42,175, if Z Ltd. considers the introduction of
Halsey Incentive Scheme to increase the worker productivity.

4. Bonus under Rowan Scheme to be paid to 50 workers:

Bonus = (Time taken / Time allowed) × Time saved × hourly rate
= (9,600 hours / 12,087 hours) × 2,487 hours × Rs. 50 = Rs. 98,764
Total wages to be paid to 50 workers are (Rs. 4,80,000 + Rs. 98,764) Rs. 5,78,764, if Z Ltd. considers the introduction of
Rowan Incentive Scheme to increase the worker productivity.

(i) (a) Effective hourly rate of earnings under Halsey scheme:

(Refer to Working Notes 1, 2 and 3)
= (Total time wages of 50 workers + Total bonus under Halsey scheme) / Total hours worked
= (Rs. 4,80,000 + Rs. 62,175) / 9,600 hours = Rs. 56.48
Effective increase in earnings of worker (in %) = [ (Rs. 56.48 - Rs. 50) / Rs.50 ] x 100 = 2.96%

(b) Effective hourly rate of earnings under Rowan scheme:

(Refer to Working Notes 1, 2 and 4)
= (Total time wages of 50 workers + Total bonus under Rowan scheme Total ) / Total hours worked
= (Rs. 4,80,000 + Rs. 96,875) / 9,600 hours = Rs. 60.29
Effective increase in earnings of worker (in %) = [(Rs. 60.29 - Rs. 50) / Rs.50 ] 50 x 100 =20.58%

(ii) (a) Saving in terms of direct labour cost per unit under Halsey scheme: (Refer to Working Note 3)
Labour cost per unit (under time wage scheme) = 1.975 hours × Rs. 50 = Rs. 98.75
Labour cost per unit (under Halsey scheme)
= (Total wages paid under the scheme / Total number of units produced ) = (Rs. 5, 42,175 / 6,120)
= Rs. 88.60
Saving per unit = Rs. 98.75 – Rs. 88.60 = Rs. 10.15

(b) Saving in terms of direct worker cost per unit under Rowan Scheme: (Refer to Working Note 4)
Labour cost per unit under Rowan scheme = Rs. 5,78,764/6,120 units= Rs. 94.57
Saving per unit = Rs. 98.75 – Rs. 94.57 = Rs. 4.18

(iii) Calculation of Productivity:

Normal Production Hours worked/Unit per Hour (9,600/1.975) Actual Production Units 4,861
Increase in labour productivity 6,120
1,259

% Productivity i.e. increase in production/Normal production 25.9%

Advice: Rowan plan fulfils the company’s assurance of 20% increase over the present earnings of workers. This would
increase productivity by 25.9% only. It will not adjust with the increase in demand by 40%.

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Question 11. [NOV 2020]

Following are the particulars of two workers 'R' and 'S' for a month:
Particulars R S
(i) Basic Wages (Rs.) 15,000 30,000
(ii) Dearness Allowance 50% 50%
(iii) Contribution to EPF (on basic wages) 7% 7.5%
(iv) Contribution to ESI (on basic wages) 2% 2%
(v) Overtime (hours) 20 -
The normal working hours for the month are 200 hrs. 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.
Both workers were employed on jobs A, B and C in the following proportions :
Jobs A B C
R 75% 10% 15%
S 40% 20% 40%
Overtime was done on job 'A'. You are required to :
(i) Calculate ordinary wage rate per hour of 'R' and ‘S’.
(ii) Allocate the worker's cost to each job 'A', 'B' and 'C'.

Solution 11.
(i) Calculation of Net Wages paid to Worker ‘R’ and ‘S’
Particulars R (Rs.) S (Rs.)
Basic Wages 15,000.00 30,000.00
Dearness Allowance (DA) (50% of Basic Wages) 7,500.00 15,000.00
Overtime Wages (Refer to Working Note 1) 4,500.00 ----
Gross Wages earned 27,000.00 45,000.00
Less: Provident Fund (7% × Rs. 15,000); (7.5% × Rs. 30,000) (1,050.00) (2,250.00)
Less: ESI (2% × Rs. 15,000); (2% × Rs. 30,000) (300.00) (600.00)
Net Wages paid 25,650.00 42,150.00

Calculation of ordinary wage rate per hour of Worker ‘R’ and ‘S’
R (Rs.) S (Rs.)
Gross Wages (Basic Wages + DA) (excluding overtime) 22,500.00 45,000.00
Employer’s contribution to P.F. and E.S.I. 1,350.00 2,850.00
23,850.00 47,850.00
Ordinary wages Labour Rate per hour 119.25 239.25
(Rs. 23,850 ÷ 200 hours); (Rs. 47,850 ÷ 200 hours)

(ii) Statement Showing Allocation of workers cost to each Job

Total Wages Jobs
A B C

Worker R

Ordinary Wages (15:2:3) 23,850.00 17,887.50 2,385.00 3577.50

Overtime 4500.00 4500.00 - --

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Worker S
Ordinary Wages (2:1:2) 47,850.00 19,140.00 9,570.00 19,140.00
76,200.00 41,527.50 11,955.00 22,717.50

Working Note:
Normal Wages are considered as basic wages.
Over time = {2 x(Basic wage + D.A.) x 20hours } / 200hours
= 2 x ( Rs.22,500 / 200 ) x 20hours
= Rs. 4,500

Question 12. [NOV 2019]

Zico Ltd. has its factory at two locations viz Nasik and Satara. Rowan plan is used at Nasik factory and Halsey plan at
Satara factory.
Standard time and basic rate of wages are same for a job which is similar and is carried out on similar machinery.
Normal working hours is 8 hours per day in a 5 day week.
Job at Nasik factory is completed in 32 hours while at Satara factory it has taken 30 hours. Conversion costs at Nasik and
Satara are Rs. 5,408 and Rs. 4,950 respectively. Overheads account for Rs. 25 per hour.
Required:
(i) To find out the normal wage; and
(ii) To compare the respective conversion costs.

Solution 12.
Particulars Nasik Satara
Hours worked 32 hr. 30 hr.
Conversion Costs Rs.5,408 Rs.4,950
Less: Overheads Rs.800 (Rs.25×32 hr.) Rs.750 (Rs.25×30 hr.)
Labour Cost Rs.4,608 Rs.4,200

(i)Finding of Normal wage rate:

Let Wage rate be Rs.R per hour, this is same for both the Nasik and Satara factory. Normal wage rate can be found out
taking total cost of either factory.

Nasik: Rowan Plan

Total Labour Cost = Wages for hours worked + Bonus as per Rowan plan
Rs. 4,608 = Hours worked × Rate per hour + [( Time saved / Time allowed )× Hours worked ×Rate per hour]
Or, Rs. 4,608 = 32 hr. × R + [(40 – 32 )/ 40 ×32 ×R]
Or, Rs. 4,608 = 32R + 6.4R R = Rs. 120
Normal wage = 32 hrs × Rs. 120 = Rs. 3,840

OR

Satara: Halsey Plan

Total Labour Cost = Wages for hours worked + Bonus as per Halsey plan
Rs.4,200 = Hours worked × Rate per hour + (50% ×Hours saved×Rate per hour)
Rs. 4,200 = 30 hr. × R + 50% × (40 hr. – 30 hr.) × R
Rs. 4,200 = 35 R
Or R = Rs. 120
Normal Wage = 30 hrs × Rs. 120 = Rs. 3,600

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(ii) Comparison of conversion costs:

Particulars Nasik (Rs.) Satara (Rs.)
Normal Wages (32 x 120) 3,840
(30x120) 3,600
Bonus (6.4 x 120) 768
(5 x 120) 600
Overhead 800 750
5,408 4,950

Question 13. [Old Course RTP May 2021]

JBL Sisters operates a boutique which works for various fashion houses and retail stores. It has employed 26 workers
and pays them on time rate basis. On an average an employee is allowed 8 hours for boutique work on a piece of
garment. In the month of December 2020, two workers M and J were given 15 pieces and 21 pieces of garments
respectively for boutique work. The following are the details of their work:
M J
Work assigned 15 pcs. 21 pcs.
Time taken 100 hours 140 hours
Workers are paid bonus as per Halsey System. The existing rate of wages is ₨ 60 per hour. As per the new wages
agreement, the workers will be paid ₨ 72 per hour w.e.f. 1st January 2021. At the end of the month December 2020,
the accountant of the company has wrongly calculated wages of these two workers taking ₨ 72 per hour.
Required:
(i) Calculate the loss incurred due to incorrect rate selection.
(ii) Calculate the loss incurred due to incorrect rate selection, had Rowan scheme of bonus payment followed.
(iii) Calculate the loss/ savings if Rowan scheme of bonus payment had followed.
(iv) Discuss the suitability of Rowan scheme of bonus payment for JBL Sisters?

Solution 13:
Workings Notes:
Calculation of Total hours saved:
M J

No. of garments assigned (Pieces.) 15 21

Hour allowed per piece (Hours) 8 8

Total hours allowed (Hours) 120 168

Hours Taken (Hours) 100 140

Hours Saved (Hours) 20 28

Calculation of loss incurred due to incorrect rate selection:

(While calculating loss, only excess rate per hour has been taken)
M J Total
(₨) (₨) (₨)

Basic Wages 1,200 1,680 2,880

(100 Hrs. × ₨12) (140 Hrs. × ₨12)
Bonus (as per Halsey Scheme) 120 168 288
(50% of Time Saved × Excess Rate) (50% of 20 Hrs. × ₨12) (50% of 28 Hrs. × ₨12)

Excess Wages Paid 1,320 1,848 3,168

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(i) Calculation of loss incurred due to incorrect rate selection had Rowan scheme of bonus payment followed:
M J Total (₨)
(₨) (₨)

Basic Wages 1,200 1,680 2,880

(100 Hrs. × ₨12) (140 Hrs. × ₨12)

Bonus (as per Rowan Scheme) 200 280 480

(
𝐓𝐢𝐦𝐞 𝐓𝐚𝐤𝐞𝐧
) 𝟏𝟎𝟎 𝟏𝟒𝟎
× 𝐓𝐢𝐦𝐞 𝐒𝐚𝐯𝐞𝐝 × 𝐄𝐱𝐜𝐞𝐬𝐬 𝐑𝐚𝐭𝐞
𝐓𝐢𝐦𝐞 𝐀𝐥𝐥𝐨𝐰𝐞𝐝 × 𝟐𝟎 × 𝟏𝟐 × 𝟐𝟖 × 𝟏𝟐
𝟏𝟐𝟎 𝟏𝟔𝟖

( ) ( )
Excess Wages Paid 3,360
1,400 1,960

(ii) Calculation of amount that could have been saved if Rowan Scheme were followed:
M J Total (₨)
(₨) (₨)
Wages paid under Halsey Scheme 1,320 1,848 3,168
Wages paid under Rowan Scheme 1,400 1,960 3,360
Difference (loss) (80) (112) (192)

(iii) Rowan Scheme of incentive payment has the following benefits, which is suitable with the nature of
business in which JBL Sisters operates:
(a) Under Rowan Scheme of bonus payment, workers cannot increase their earnings or bonus by
merely increasing its work speed. 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.
(b) If the rate setting department commits any mistake in setting standards for time to be taken
to complete the works, the loss incurred will be relatively low.

Question 14. [Old Course RTP Nov 2020]

GZ Ld. pays the following to a skilled worker engaged in production works. The following are the employee benefits
paid to the employee:
(a) Basic salary per day ₨ 1,000
(b) Dearness allowance (DA) 20% of basic salary
(c) House rent allowance 16% of basic salary
(d) Transport allowance ₨ 50 per day of actual work
(e) Overtime Twice the hourly rate (considers basic and DA),
only if works more than 9 hours a day otherwise no
overtime allowance. If works for more than 9 hours
a day then overtime is considered after 8th hours.
(f) Work of holiday and Sunday Double of per day basic rate provided works atleast 4
hours. The holiday and Sunday basic is eligible for all
allowances and statutory deductions.
(h) Earned leave & Casual leave These are paid leave.

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 COSTING PRACTICE SHEETS BY- CA NITIN GURU

(h) Employer’s contribution to 12% of basic and DA

Provident fund
(i) Employer’s contribution to 7% of basic and DA
Pension fund

The company normally works 8-hour a day and 26-day in a month. The company provides 30 minutes
lunch break in between.
During the month of August 2020, Mr.Z works for 23 days including 15th August and a Sunday and applied
for 3 days of casual leave. On 15th August and Sunday he worked for 5 and 6 hours respectively without
lunch break.
On 5th and 13th August he worked for 10 and 9 hours respectively. During the month Mr. Z worked for 100
hours on Job no.HT200. You are required to CALCULATE:
(i) Earnings per day
(ii) Effective wages rate per hour of Mr.Z.
(iii) Wages to be charged to Job no.HT200.

Solution 14:
Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of days
= (8 hours – 0.5 hours) × 26 days = 195 hours

2. Hours worked by Mr. Z = No. of normal days worked + Overtime + holiday / Sunday worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.

(i) Calculation of earnings per day

Particulars Amount (₨)
Basic salary (₨ 1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200
31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × ₨ 31,200) 3,744
Employer’s contribution to Pension fund (7% × ₨ 31,200) 2,184
41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638

(ii) Calculation of effective wage rate per hour of Mr. Z:

Particulars Amount (₨)
Basic salary (₨ 1,000 × 26 days) 26,000
Additional basic salary for Sunday & holiday (₨ 1,000 × 2 days) 2,000
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (₨ 50 × 23 days) 1,150
Overtime allowance (₨ 160 × 2 × 2 hours)* 640

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 COSTING PRACTICE SHEETS BY- CA NITIN GURU

Employer’s contribution to Provident fund (12% × ₨ 33,600) 4,032

Employer’s contribution to Pension fund (7% × ₨ 33,600) 2,352
Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) ÷ 7.5 hours
= (1,000+200) ÷ 7.5 = ₨ 160 per hour

(iii) Calculation of wages to be charged to Job no. HT200

= ₨ 248 × 100 hours = ₨ 24,800

Question 15. [Old Course RTP Nov 2019]

ADV Pvt. Ltd. manufactures a product which requires skill and precision in work to get quality products. The company
has been experiencing high labour cost due to slow speed of work. The management of the company wants to reduce
the labour cost but without compromising with the quality of work. It wants to introduce a bonus scheme but is
indifferent between the Halsey and Rowan scheme of bonus.
For the month of November 2019, the company budgeted for 24,960 hours of work. The workers are paid `80 per hour.
Required:
Calculate and suggest the bonus scheme where the time taken (in %) to time allowed to complete the works is (a) 100%
(b) 75% (c) 50% & (d) 25% of budgeted hours.

Solution 15:
Time Time Wages (₹) Bonus(₹) Total Wages (₹) Earning Per Hour (₹)
Allowed Taken Halsey* Rowan** Halsey Rowan Halsey Rowan
(1) (2) (3) = (2) x ₹ 80 (4) (5) (6) (7) (8) (9)
= (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 = x Time Saved x Rate per Hour
𝐓𝐢𝐦𝐞 𝐀𝐥𝐥𝐨𝐰𝐞𝐝
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.

Question 16. [Old Course Jan 2021]

(a) The standard time allowed for a certain piece of work is 300 hours. Normal wages is ₹ 60 per hour.
The bonus system applicable to the work is as follows:

Percentage of time saved to time allowed (slab rate) Bonus

(i) Up to the first 20% of time allowed 25% of the corresponding saving in time.
(ii) For and within the next 30% of time allowed 40% of the corresponding saving in time.
(iii) For and within the next 30% of time allowed 30% of the corresponding saving in time.
(iv) For and within the next 20% of time allowed 10% of the corresponding saving in time.
Calculate the total earnings of a worker over the piece of work and his earnings per hour when he takes.
(a) 320 hours,
(b) 150 hours, and
(c) 30 hours respectively. (8 Marks)

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Solution 16:

(a) Calculation of total earnings and earnings per hour:

Particulars (a) Time taken is 320 (b) Time taken is 150 hours (c) Time taken is 30 hours
hours
A. Time Allowed 300 hours 300 hours 300 hours
B. Time taken 320 hours 150 hours 30 hours
C. Time Saved (A-B) Nil 150 hours 270 hours
D. Bonus hours Nil 51 hours 81 hours
(Refer the workings)
E. Hours to be paid (B+D) 320 hours 201 hours 111 hours
F. Wages rate per hour ₹ 60 ₹ 60 ₹ 60
G. Total earnings (E×F) ₹ 19,200 ₹ 12,060 ₹ 6,660
H. Earnings per hour (G÷B) ₹ 60 ₹ 80.40 ₹ 222

Workings:
Calculation of bonus hours:
Time saved 150 hours Time saved 270 hours
For first 20% of time allowed i.e. 60 15 15
hours (25% of 60 hours) (25% of 60 hours)
For next 30% of time allowed i..e. 90 36 36
hours (40% of 90 hours) (40% of 90 hours)
For next 30% of time allowed i..e. 90 - 27
hours (30% of 90 hours)
For next 20% of time allowed i..e. 60 - 3
hours (10% of 30 hours)
Bonus hours 51 81

Question 17. [Old Course Nov 2019]

ABC Limited is facing the problem of increasing labour turnover in the factory. The management is willing to analyse the
causes and take remedial steps.
Last year sales of the company amounted to ₹ 12,18,49,320 and the P/V ratio was 25%. The total number of actual hours
worked by the direct labour force was ₹ 5.75 lakhs. The company lost 1,25,000 potentially productive hours due to delay
in filling vacancies caused by labour turnover. The actual direct labour hours included 60,000 hours attributable to
training of new recruits, out of which 30% of the hours were unproductive.
The accounting records reveal the following costs incurred consequent to labour turnover:
Recruitment costs - ₹ 5,36,300
Selection cost - ₹ 2,78,400
Training costs - ₹ 4,25,000
Settlement costs due to leaving - ₹ 7,18,800
Assuming that the potential production lost as a consequences of labour turnover could have been sold at prevailing
prices , find out the contribution and profit foregone by the company in the last year due to labour turnover.

Solution 17:

Workings :
Computation of less productive hours
Actual hours worked (given) 5,75,000
Less : Unproductive training hours 18,000
Actual productive hours 5,57,000

(i) Computation of contribution foregone on account of labour turnover

The potentially productive hours lost are 1,25,000
Sales lost for 1,25,000 hours = (12,18,49,320/5,57,000 hours) x 1,25,000 hours = Rs. 2,73,45,000
Contribution lost for 1,25,000 hours= (2,73,45,000/100) x 25 = Rs. 68,36,250

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 COSTING PRACTICE SHEETS BY- CA NITIN GURU

(ii) Computation of profit forgone on account of labour turnover

Particulars (₹)
Contribution foregone (as calculated above) 68,36,250
Recruitment cost 5,36,300
Selection cost 2,78,400
Training costs 4,25,000
Settlement cost due to leaving 7,18,800
Profit foregone 87,94,750

Alternatively, the Productive hours lost can be calculated as 1,25,000 hours (delay in vacancy) + 18000 hours
(unproductive training hours) = 1,43,000 hours. So,

₹ 𝟏𝟐,𝟏𝟖,𝟒𝟗,𝟑𝟐𝟎
Sales lost for 1,43,000 hours will be x 1,43,000 hours = ₹ 3,12,82,680. Therefore , contribution lost
𝟓,𝟓𝟕,𝟎𝟎𝟎 𝐡𝐨𝐮𝐫𝐬
₹ 𝟑,𝟏𝟐,𝟖𝟐,𝟔𝟖𝟎
for 1,43,000 hours is x 25 = ₹ 78,20,670 (instead of ₹ 68,36,250). Accordingly , total profit foregone
𝟏𝟎𝟎
on account of labour turnover will be ₹ 97,79,170.

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