Question

Bolan Engineering limited produces Camp shaft for Millat Tractors limited. The standard production is 40 units per hour with a Base wage of Rs. 300 per hour for the payment of wages to their workers for their Camp shaft plant. The company employs 5 workers in Camp shaft plant.
Each worker worked 25 days @8 hours per day in the month of March, 2020.
The each worker produced the following actual production during the month of March, 2020:

Name of workers Actual Outputs
of each worker
“Units”
Muhammad Hassan 8,800
Muhammad Tayab 8,600
Zafar Junaid 9,000
Muhammad Ayuab 8,000
Marium khalid 7,500



Required:
i). A schedule showing total labor cost for each worker, labor cost per unit for each worker, and total labor cost for Camp shaft Plant in the month of March, 2020 , if Company uses 80% Time saved., i.e., 80% Bonus Plan.
                                                                                                                                                                 
ii).From the three popular methods of labor remunerations. i.e., time rate system, pieces rate system and incentive schemes, which system would you recommend to management of Bolan engineering limited as a Cost and Management accountant? Give in support of recommended system with proper justifications and advantages to management.  

Answer 1

Ans
Standard Units produced			40Units/Hour
Basic Wage Rate			Rs 300/ hour
Rate per unit			7.5	Rs
No. of Workers			5
No. of hours each worker each day			8
Days worked			25
Total No. of hours available of all workers in March		25*8*5	1,000.00	Hours
		Hasan	Tayyab	Junaid	Ayub	Khalid	Total	Hours Required	Amount = Rate / hr * No. of Hrs
No. of Units produced		8,800.00	8,600.00	9,000.00	8,000.00	7,500.00	41,900.00	1,047.50	314250
Rate p.u		7.50	7.50	7.50	7.50	7.50
Total Amount		66,000.00	64,500.00	67,500.00	60,000.00	56,250.00	314,250.00
							Available Hours	1,000.00
							Overtime hours	47.50
							Cost for Overtime	14,250.00
							Bonus(80%)	11,400.00
							Total Labour Cost including Bonus for March	339,900.00
Ans2
Time rate system of payment of wages refers when payment is made by rate / hour to workers which and no. of units produced is irrelevant in this.
Piece Rate system is when payment is made on the basis of no. of units produced by workers where time required to such units is irrelevant for decision.
As a cost Accountant , I will suggest if there is huge demand of units and time shortage is there than use Piece Rate system.
But if Demand is normal and time is short for production then use time rate system of payment so that maximum output can be taken from workers
Also, Incentive Scheme is a good option to keep workers motivated and effective and efficiency can be improved with some incentive scheme introduced.