Question

Bolan Engineering limited produces Camp shaft for Millat Tractorslimited. 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

Calculation of Total Wages for Each Employee

Standard Units of Production = 40 units in one hour

Hours Worked = 25 * 8 = 200 hours

Therefore, Standard units of a worker =  200 * 40 = 8000 units.

Actual Units

1 ) Muhammad Hassan = 8800 units in 200 hours

8,000 units = 182 hours

2) Muhammad Tayab = 8600 units in 200 hours

8,000 units = 186 hours

3)Zafar Junaid = 9,000 units in 200 hours

8,000 units = 178 hours

4)  Muhammad Ayuab 8000 units in 200 hours

No time saved

5) Marium khalid 7500 units in 200 hours

No time saved

Table for Calculation of Total Wages of 5 employees

Name of Employees	Hours Worked	Rate per hour	Time Given	Time Taken	Time Saved	Basic Wage (Hours worked * Basic wage Rate)	Bonus ( 80% (Time Saved * Hourly Rate)	Total Wages (Basic Wage + Bonus)
Muhammad Hassan	25*8 = 200	300	200	182	18	60,000	80% of 18 * 300 = 4320	64,320
Muhammad Tayab	25*8 = 200	300	200	186	14	60,000	80% of 14 * 300 = 3,360	63,360
Zafar Junaid	25*8 = 200	300	200	178	22	60,000	80% of 22 * 300 = 5280	65,280
Muhammad Ayuab	25*8 = 200	300	200	200	0	60,000	0	60,000
Marium khalid	25*8 = 200	300	200	More than 200	0	60,000	0	60,000

From the three labor remunerations. i.e., time rate system, pieces rate system and incentive schemes, Incentive Scheme is most appropriate.

Incentive Scheme attempts to combine the merits of both time rate and piece rate system and eliminates demerits of them. Advantages of Incentive Schemes include:

• Less supervision is required
• The employee morale is high because with this scheme employees can earn more.
• Increased productivity for getting higher bonus.
• Increased production resultsin reduced costs.
• Labour cost can be easily estimated.
• Resources can be utilized maximum.
• Tasks are performed in most economical manner.