Question

1) An incentive plan employing a kicker is in use. Below standard performance the worker is guaranteed a rate of $6 per hour and above standard performance the worker is paid $9.20 per hour. A job is studied and a rate of 0.036 hours per piece is set. What is the direct labor cost per piece at the following efficiencies?

a. 50 percent?

b. 80 percent?

c. 98 percent?

d. 105 percent?

e. 150 percent?

Answer 1

100% efficiency is considered as a standard Efficiency.

So For <100% efficiency labor cost is $ 6 per hour. For >100% efficiency labor cost is $9.20 per hour

i) 50%

Labor Cost = $6 per hour

Standard Rate = 0.036 hour

Direct Labor Cost per piece = (Standard Rate*Labor Cost)/Efficiency = (0.036*6)/0.5 = $0.432

ii) 80%

Labor Cost = $6 per hour

Standard Rate = 0.036 hour

Direct Labor Cost per piece = (Standard Rate*Labor Cost)/Efficiency = (0.036*6)/0.8 = $0.27

iii) 98%

Labor Cost = $6 per hour

Standard Rate = 0.036 hour

Direct Labor Cost per piece = (Standard Rate*Labor Cost)/Efficiency = (0.036*6)/0.98 = $0.2204

iv) 105%

Labor Cost = $9.20 per hour

Standard Rate = 0.036 hour

Direct Labor Cost per piece = (Standard Rate*Labor Cost)/Efficiency = (0.036*9.20)/1.05 = $0.3154

v) 150%

Labor Cost = $9.20 per hour

Standard Rate = 0.036 hour

Direct Labor Cost per piece = (Standard Rate*Labor Cost)/Efficiency = (0.036*9.20)/1.5 = $0.2208