COST AND MANAGEMENT ACCOUNTING PROJECT

TOPIC: LABOUR COST CONTROL

SUBMITTED BY:
Riya Singh (20/BBA/038)

Nistha Sunil Hansaria (20/BBA/031)

3RD SEMESTER
B.B A.L.L.B (Hons.)
Of

NATIONAL LAW UNIVERSITY, ODISHA

Under the Guidance

Of

Mr. A.B. Debasis

Rout (Assistant
Professor)
 TABLE OF CONTENTS

TABLE OF CONTENTS............................................................................................................................................... 2
ACKNOWLEDGEMENTS............................................................................................................................................. 3
INTRODUCTION............................................................................................................................................................ 4
TYPES OF LABOR COST............................................................................................................................................ 4
CONTROL OF LABOR COST...................................................................................................................................... 5
PERSONNEL DEPARTMENT..................................................................................................................................... 5
ENGINEERING AND WORKS STUDY DEPARTMENT....................................................................................... 6
TIME AND MOTION STUDY DEPARTMENT....................................................................................................... 6
TIMEKEEPING AND TIME BOOKING DEPARTMENT...................................................................................... 6
METHODS OF TIMEKEEPING................................................................................................................................. 6
MANUAL METHOD.................................................................................................................................................. 7
MECHANICAL METHOD......................................................................................................................................... 7
TIME BOOKING......................................................................................................................................................... 8
IDLE TIME...................................................................................................................................................................... 9
NORMAL IDLE TIME............................................................................................................................................... 9
ABNORMAL IDLE TIME.......................................................................................................................................... 9
OVER TIME................................................................................................................................................................... 9
EFFECTS OF OVERTIME PREMIUM ON PRODUCTIVITY................................................................................ 9
PAY ROLL DEPARTMENT...................................................................................................................................... 10
LABOUR TURNOVER............................................................................................................................................... 11
EFFECT OF LABOUR TURNOVER...................................................................................................................... 11
METHODS OF WAGES PAYMENTS..................................................................................................................... 12
TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM........................................................................................ 12
HALSEY PLAN......................................................................................................................................................... 13
MERRICK DIFFERENTIAL PIECE WORK SYSTEM........................................................................................ 13
ROWAN PLAN......................................................................................................................................................... 13
EMERSON EFFICIENCY PLAN............................................................................................................................ 14
BEDEAUX POINT PREMIUM SYSTEM.............................................................................................................. 14
GANTT'S TASK AND BONUS PLAN................................................................................................................... 15
OVERHEADS................................................................................................................................................................ 16

Page | 2
LABOUR COST CONTROL
 ACKNOWLEDGEMENTS

“Gratitude is the fairest blossom which springs from the soul.” – Henry Ward Beecher.
Without the generous love and help of some individuals this assignment would not have been
possible. We want to express to all of them our sincere thanks.
We are profoundly obliged to subject teacher of Accounts Mr. A.B. Debasis Rout, who gives
their valuable insights and helped us in the right approach of the project; we thank her for her
model advice and constant support. The encouragement, assistance and guidance she offers
would lead us on a long path through the future that we are about to embark on.
We would also like to thank and appreciate our colleagues and individuals who have enabled us
to create the project with dedication. We are very grateful and lucky to obtain consistent
encouragement and advice from NLUO’s entire faculty, which have helped us achieve our
project effectively.

-Riya Singh
-Nistha Sunil Hansaria

Page | 3
 INTRODUCTION

Labour is a human resources and effort to convert materials into finished goods. Labour can be
divided as direct labour and indirect labor. Labor cost is an essential element of cost. It is the
cost of human efforts into the product and it requires harmonized efforts for its to be at under
control. The management’s aim of keeping the labour cost low as possible is achieved by
balancing productivity with wages. It also forms significant part of prime cost and total cost.
Wages, salaries and other forms of remunerations represent a major portion of the total cost of a
product or services. Low wages does not mean low labour cost. Low labour cost is possible by
giving generous increase in wages against corresponding in the productivity. Productivity of
labour is quite flexible. By giving the right motivation and incentives, it can reach to marvelous
scale. Labour cost is an important factor which not only affects the cost of production but also
industrial relations of the organization. No organization can expect to attract and attain qualified
and motivated employees unless it pays them fair remunerations. Employee remunerations are
hence an essential influence on the growth and profitability of the company. For employees, the
remuneration is more than a means to just satisfy their physical needs. The growth and
profitability of the concern depends upon proper utilization of human resources or labour forces
which in turn needs proper accounting and control of cost. At the same time labour is the only
factor which has the unlimited productive capacity. In many instances labour can achieve
wonders in regard to the amount and quality of work performed by them. However, labour is
complex and therefore it requires systematic planning and control.

TYPES OF LABOR COST

The labour cost can be classified into two types:

I. Direct Labour Cost: Any labour cost that is specially incurred for or can be readily
charged to or identified with a specific job, contract, work order or any other unit of cost
is termed as direct labour cost. Wages for supervision, wages for foremen, and wages for
labours who are actually engaged in operation or process are the examples of direct
labour cost.
II. Indirect Labour Cost: Indirect labour is for work in general. The importance of the
 distinction lies in the fact that whereas direct labour can be identified with and charged
to the job, indirect labour cannot be so charged and has, therefore to be treated as part of
the factory overheads to be included in the cost of production. For example, salaries and
wages of supervisors, storekeepers and maintenance labour etc.

Need for differentiation between Direct labour cost and Indirect labour cost:

 For calculating accurate labour cost and thus provide a basis for strict control.

 Helps in calculation of labour efficiency

 Helps in proper allocation of overheads

 Helps in proper introduction of incentive schemes.

 For inter-unit comparison

 For estimating total labour costs.

 CONTROL OF LABOR COST
Control of labour cost is a significant influence on the growth, profitability and cost of production.
Labour cost may become unduly high rate due to inefficiency of labour, ineffective supervision,
ideal time, unusual overtime work etc. The primary objective of management therefore is to
efficiently utilize the labour as economically as possible.
The main aim of the control over cost is to keep labour cost per unit of out as low as possible.
Labour costs can be controlled by proper employment and there afterwards efficient utilization
of labour force. Inefficiency of labour is also a cause of excessive materials and overhead costs.

Important Factors for the Control of Labour Cost:

To exercise an effective control over the labour costs, the essential requisite is efficient utilisation of
labour and allied factors.
The main points which need consideration for controlling labour costs are the following:
(i) Assessment of manpower requirements.
(ii) Control over time-keeping and time-booking.
(iii) Time & Motion Study.
(iv) Control over idle time and overtime.
(v) Control over labour turnover.
(vi) Wage systems.
(vii) Incentive systems.
(viii) Systems of wage payment and incentives.
(ix) Control over casual, contract and other workers.
(x) Job Evaluation and Merit Rating.

There are a number of departments in big industries which influence labour cost. The coordinated
efforts of all such departments will be needed to control labour cost. These departments are:
 Personnel Department
 Engineering Department
 Time & Motion study Department
 Time Keeping Department
 Payroll Department
 Cost Accounting Department

PERSONNEL DEPARTMENT
Personnel department plays a very important role in control of labour costs. It is primarily concerned
with the recruitment of labour on the basis of employee placement requisition and imparting
training to them. And thereafter placing them to the job for which they are best suited. In order
to achieve the efficient utilization of manpower resources, this department is responsible to
execution of labour policies which have been laid down by top management. The important
duties of this department include recruitment, selection, training, placement, fixation of
remuneration, performance appraisal. Different departments send their requisitions for
placement of workers to personnel department and the department decides on the selection
procedure to be followed. The department also keeps records of particulars of employees. The
record is kept on a card known as Employee History Card. Functions of this department are as
follows: (i) Recruitment and selection of workers. (ii) Training and development of workers.
(iii) Orientation and placement of workers. (iv) Maintenance of personnel records.
 ENGINEERING AND WORKS STUDY DEPARTMENT

Engineering department is primarily concerned with maintaining control over working

conditions and production methods for each job, process, operation or departments. It is
performed by undertaking the following functions: (I) Preparation of plan and specification of
each job. (2) Maintaining required safety and efficient working conditions. (3) Making time and
motion studies. (4) Conducting job analysis, job evaluation and merit rating. (5) Setting fair and
equitable piece rate or time wage system. (6) Conducting research and experimental work.

TIME AND MOTION STUDY DEPARTMENT

It may be defined as the observing time required to do a particular. It relates to fixing the
standard time for doing a job under given condition. It is a means to achieve economy in time.
Time study is also called work measurement. Time study may be defined as "the art of
observing and recording the time required to do each detailed element of an industrial operation.
Motion study is the study of the movement of an operator or a machine. It aims at eliminating
unnecessary, ill-directed and inefficient motions of an employee or machine. Frank Gilbreth,
who is the real founder of Motion Study. According to him motion study may be defined as the
"science of eliminating wastefulness resulting from ill-directed and inefficient motions.

TIMEKEEPING AND TIME BOOKING DEPARTMENT

Timekeeping refers to recording of each worker's time of coming in and going out of the factory
during engagement of the factory. It is essential for the purpose of attendance and determination
of wage payable to each worker. Objectives of Timekeeping:
i. Preparation of payrolls
ii. Ensuring discipline in attendance
iii. Apportionment of overhead on the basis of labour hours
iv. Effective utilization of human resources
v. Minimization of labour costs
vi. Ascertaining ideal labour time and ideal machine time.

METHODS OF TIMEKEEPING

The following are the two important methods of timekeeping:

1. Manual Method: (a) Attendance Register Method. (b) Token or Disc Method.
 2. Mechanical Method: (a) Time recording clocks. (b) Dial Time Records (c) Key
Recorder System.

MANUAL METHOD

The choice of the manual method adopted by the factory depends upon its size, number of
workers employed, nature of the business and policy of a firm.Under manual methods, there are
two important methods which are in use:
ATTENDANCE REGISTER METHOD
Under this method, an Attendance Register is maintained by the Timekeeper in the time office.
This register may be filled in by the Timekeeper when the worker gets inside the factory and the
time of departure, normal time and overtime. Workers may be required to sign both at the time
of arrival and time of departure. This method is very simple and most suitable to small-scale
industries. It is very difficult to operate when the number of workers is large.
TOKEN OR METAL DISC METHOD
In this method, each worker is given a metal disc or a token bearing his identification number.
All the tokens or discs are hung on a board serially at the entrance of the gate in the factory. As
the worker enters the gates of the factory, he removes his disc from the board and drops it into a
box. This process is continued until the scheduled time expires. Latecomers may drop their
tokens in a separate box or handover personally to the timekeeper. In the case of absentees the
tokens are not removed from the board. Based on the above process, the Timekeeper records the
attendance in the register known as Muster Roll for the purpose of pay rolls.

MECHANICAL METHOD

In order to achieve the accuracy and reliability of recording of time of workers, the following
different mechanical devices are used
TIME RECORDING CLOCKS
Under this system, each worker is' given a time card for a week or fortnight. These time or clock
cards are serially arranged in a tray at the entrance to the factory. When the worker enters the
factory, he takes his allotted card from the tray and puts it in the time recording clock that
records the exact arrival time at the space provided on the card against the particular day.
DIAL TIME RECORDS
This is a machine which is used for recording correct attendance time of arrival and departure of
worker automatically. This recorder has a number of holes about the circumference. Each hole
represents worker's number which corresponds to identification of allotted clock numbers. At the
time of arrival and departure of worker, by operating this machine, the dial arm into a hole and
the time is automatically recorded on an attendance sheet placed inside. This machine is most
suitable in small-scale industries.
KEY RECORDER SYSTEM
In this machine there are a number of keys, each key denotes worker's number. When the time
of arrival and departure the worker inserts his allotted key in the key hole and gives a turn, the
ticket time and clock time are recorded on a sheet of paper. This method is economical and easy
to operate.

TIME BOOKING

It refers recording the time of each worker for each department, operation, process or job during
engagement of the factory. It is useful for the purpose of cost analysis and effective cost control.
Methods of time booking:
DAILY TIME SHEET
This is one of the important methods which is used for a daily record of the work done by each
worker. This record indicates that the nature of work, actual time spent by the worker on each
job or operation. The daily time sheet is allotted to each worker on which the record is made by
the worker himself or by the official in charge. This method is suitable only for small-scale
industries.
WEEKLY TIME SHEET
This system may be done as in the case of daily time sheet. Under this method, instead of
recording time on daily time sheets, worker is given a weekly time sheet on which recording by
the worker on each job for a week. This method is useful for those concerns where the workers
usually carry on a few jobs in a week.
JOB CARD OR JOB TICKETS
This method is adopted for recording of time booking for a worker's time spent on a job. A job
card is prepared for each job giving detailed particulars of the work to be carried out by the
worker.
 IDLE TIME

Idle Time is defined as the period of hours within which employees spend much of their time
doing nothing productive or beneficial to the employer or business. Idle time can occur due to a
lack of raw resources, a power outage, or a machine breakdown, among other things.

NORMAL IDLE TIME

Normal idle time refers to that period that could not indeed been avoided and that for which the
business is responsible for the price of labour. The following are some of the causes for normal idle
time:

a) The time it takes for workers to go between the factory gate towards the production area.
b) An interval of time between the two works. (for completing one and beginning the next.)
c) Breaks are permitted during business hours. Tea, for example, or a lunch break.
d) Disruption of machinery.
e) Waiting period to get on with job or work

ABNORMAL IDLE TIME

It is that period of time, which can be saved, if necessary safeguards are taken. Reasons:
a) Break down of machineries,
b) Power failure,
c) Shortage of materials,
d) Unnecessarily waiting for instruction by senior, materials, tools etc.
e) Strikes & lock outs.

OVER TIME
When an employee worked beyond his or her typical working hours or allotted time, this is
referred to as "overtime." As per the Factories Act, overtime work should be compensated at
twice the normal rate of pay. Overtime bonus refers to the additional recompense provided to an
employee in addition to his or her regular rate of pay.

EFFECTS OF OVERTIME PREMIUM ON PRODUCTIVITY

Overtime has a negative impact on a worker's efficiency as well as the production costs for the
reasons listed:

i.Overtime is compensated at a higher/duplicate rate.

ii. Overtime work affected worker efficiency when compared to normal hours.

iii. Workers will develop the practice of deferring work needs to be done in overtime in order to
earn more money, resulting in a decrease in production during normal working hours.

iv. Working overtime on a regular schedule has a negative impact on workers' health.

v. Expenses such as illumination, monitoring, equipment wear and tear, and so on will rise
disproportionately.

vi. If overtime is just not allocated appropriately, this might cause employee discontent
(dissatisfaction). As a result, overtime labor must be discouraged since overtime work costs
more than jobs done during normal hours. Therefore, overtime work should be avoided because
jobs done in overtime cost more compared to the job done during normal hours.

Overtime, on the other hand, cannot be completely abolished since there are some legitimate
circumstances in which there is no other option but just to work overtime.
 PAY ROLL DEPARTMENT

This is amongst the most significant departments, as it is in charge of calculating, preparing, and
paying all of the institution's employees' salaries. The Piece - rate Card, Time Card, or perhaps
both are used to create the Wage Sheet or Payment Roll. It is a report that reveals the accurate
records of the workers' salaries and benefits for a certain period, including gross wages, various
cuts, and net salaries. The pay roll department must be given specific attention in particular to
guarantee effective salary determination and administration. To avoid salary payment theft and
inconsistencies, a structured wage payment mechanism must be implemented. To guarantee that
the employee is not paid twice and also that fake names of workers are not placed into the
payroll, effective oversight and stringent control are required.
 LABOUR TURNOVER

"The rate of participation in the labor force, i.e., the proportion of changes in labor force of an
organisation within a certain period," says one definition of labour turnover. A rising rate of
labour turnover shows that the workforce is not steady or that there are lots of changes in the
workforce. It will have an impact on employee productivity and the company's overall
profitability.

Methods of Measurement of Labour Turnover:

I. Separation Method: Labor turnover is estimated using this approach by dividing the
total number of separations (number of employees left or discharged) by the average
number of workers on the payroll during the period. Thus, the formula is:

Number of separations during the period

= × 100
Average number of workers during the
period

II. Replacement Method: Labor turnover is calculated using this technique by dividing the
number of workers replaced throughout the time by the average number of workers
during the time. Thus, formula may be expressed as:

Number of workers replaced during the

= × 100
period Average number of workers during
the period

III. Flux Method: Labor turnover is calculated using this method by dividing the total
number of worker separations and replacements by the average number of workers
during the period. Thus, the formula is:

Number of separations + number of

= × 100
replacements Average number of workers
during the period

EFFECT OF LABOUR TURNOVER

i. Higher recruitment, training, and placements costs
ii. Higher production costs
iii. Lower output owing to incompetent or recently hired staff
iv. Increased accident rate caused by mechanical mishandling or neglect
 v. Leading to a shortage of collaboration and integration between workers and employers, there
is a low level of team spirit.

Illustration 1:

The management of Damon and Elena Ltd. are worried about their increasing labour turnover in the factory
and before analyzing the causes and taking remedial steps, they want to have an idea of the profit foregone as
a result of labour turnover in the last year. Last year sales amounted to 1,66,06,600 and P/V ratio was 20 per
cent. The total number of actual hours worked by the Direct Labour force was 8,90,000 . As a result of the
delays by the Personnel Department in filling vacancies due to labour turnover, 2,00,000 potentially
productive hours were lost. The actual direct labour hours included 60,000 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 cost due to leaving 87,640

Recruitment costs ` 53,480
Selection costs ` 25,500
Training costs ` 60,980

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.

Solution:
Determination of contribution foregone
Actual hours worked (given) 8,90,000
Less: Unproductive training hours (30,000)
Actual productive hours 8,60,000

The potentially productive hours lost are 2,00,000

Sales lost for 2,00,000 hours =
16,606,600 × 2,00,000 hrs/ 8,60,000 hrs =` 38,62,000

Contribution lost for 2,00,000 hrs. =

38,62,000/ 100 ` × 20 = 7,72,400...........(i)

Statement showing profit foregone last year on account of labour turnover of Damon and Elena Ltd. `
(In rupees)
Contribution foregone as per (i) 7,72,400
Settlement cost due to leaving 87,640
Recruitment cost 53,480
Selection cost 25,500
Training costs 60,980
Profit foregone 10,00,000

Illustration 2:

The Cost Accountant of X Ltd. has computed labour turnover rates for the quarter ended 31st March, 20011
as 10%, 5% and 3% respectively under ‘Flux method’, ‘Replacement method’ and ‘Separation method’
respectively. If the number of workers replaced during that quarter is 60, find out the number of:
(1) workers recruited and joined and
(2) Workers left and discharged.
Solution:

Working Note:
Average number of workers on roll:
Labour turnover rate under replacement method=
No.of replacements/ Average number of workers on roll ×100
Or 5/100 = 60/Average number of workers on roll
Or Average number of workers on roll =60×100 / 5 = 1,200

(1) Number of workers recruited and joined :

Labour turnover rate =
[{No .of separations * (S) +No.of accessions (A)} /Average number of workers on roll ]× 100

(Flux method)
(Refer to Working Note)

Or 10 /100= 18 * + A= 1,200
Or A = (12,000/100) - 18 = 102
No. of workers recruited and joined 102.

(2) Number of workers left and discharged :

Labour turnover rate = No.of separations(S) /Average number of workers on roll × 100

(Separation method)
(Refer to working note)

3/ 100 = S/ 1,200
Or S* = 36

Hence, number of workers left and discharged comes to 36.

 METHODS OF WAGES PAYMENTS
The two principal methods of wages payments are as follows:
I. Time Rate Wage System
II. Piece Rate Wage System.

TIME RATE WAGE SYSTEM

Wages are paid according to the amount of time that employees labor under this system.
Calculating a time rate is straightforward. For time being spent in the workplace, the worker is
guaranteed payment.

PIECE RATE WAGE SYSTEM

Wages are compensated according to the quantity of goods generated by workers within this
method. Piece rate system can be of the following types:
i. Straight piece rate: Each unit created is treated as a separate piece in this method.
For each unit of product produced, a piece rate is established. It can be calculated in
the following way:
Wages(Earning) = No. of piece produced x Piece rate.

Advantage :
1. The system is simple to operate and also easy to understand.
2. The incentive provided is quite effective as the workers get the full benefit of any increase
in production and the employer also gains by saving on overhead costs.
3. Labour cost per unit being constant, these can be calculated in advance and quotations can
be confidently submitted.
Disadvantage :
1. The quality of output usually suffers.
2. Maintenance of detailed statistics as regards production of individual workers is necessary.
3. Maintenance of satisfactory discipline in the matter of arrival and departure of workers
becomes somewhat difficult.
4. In the anxiety to produce as large a quantity as possible, workers may damage the machines
and may also increase wastage of materials.
5. Skilled workers and supervisors (who are often paid on time basis) may resent higher
wages to unskilled workers paid on the piece basis.
ii. Piece rate with guaranteed wages: For novice and inexperienced workers, a piece
rate with assured earnings is applicable. They are paid a low income rather than a
regular piece rate, which motivates employees to progressively increase their
efficiency and eventually match the normal of other employees.
 iii. Differential piece rate system: Workers' pay change at distinct phases of
production, within a defined range of output, within this arrangement. Taylor's
differential piece rate system and Merrick's differential piece rate system are two
systems that work on this idea.

TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM

Efficiency Piece Rate

Less than 100% 83% of normal piece rate
Greater than or equal to 100% 125% of normal piece rate

F.W. Taylor created this technique in 1880. The following are the characteristics of this wage
payment system: (i) There are no wage guarantees. (ii) Each work is assigned a specific amount
of time. (iii) Two differential piece rates are fixed: ‘Lower piece rate’ i.e. 80% of the normal
piece rate for the workers produce below the standard out. ‘Higher piece rate’ i.e. 120% of the
normal piece rate for the workers produce standard output or more than standard output. (Some
authors use 83% and 125% for lower and higher piece rate respectively.)

Illustration 3:

Using Taylor’s differential piece rate system, find the earnings of the Amar, Akbar and Anthony from the
following particulars:
Standard time per piece: 40 minutes
Normal rate per hour: Rs. 18.00

In a 8 hour day:

Amar produced : 46 units

Akbar produced : 48 units
Anthony produced : 60 units

Solution:
Earnings under Differential piece rate system

Workers Amar Akbar Anthony

Standard output per day (units) 48 48 48

Actual output per day (units) 46 48 60
Efficiency (%) 95.83% 100% 125%
(Actual/Standard output) x 100 ( 46/48) x100 (48/48) x100 (60/48) x100
Earning rate per unit 83% of the piece rate 125% of the piece rate 125% of the
piece rate
Earning rate per unit(Rs.) 83% of Rs. 3 125% of Rs 3 125% of Rs 3
Earnings (Rs) 114.54 180 225
(46units x Rs. 2.49) (48units x Rs. 3.75) (60 units x Rs. 3.75)

Working Note:
Normal rate per hour = Rs. 18.00
Normal rate per unit = ` 18.00 /Standard production per hour = Rs. 18.00/ 6 units =Rs 3
HALSEY PLAN

In Halsey plan, the time wages are guaranteed even if the output of a worker is below the
standard. In case, the worker completes the works in less than the standard time, then he/she will
be paid according to the actual time, i.e. time-rate plus the bonus calculated at a specified
percentage of the saved time. Generally, the bonus percentage varies from 30-70 percent. Under
this method, standard time for doing each job is fixed and the worker is given wages for the
actual time he takes to complete the job at the agreed rate per hour plus a bonus equal to
(usually) one-half of the wages of the time saved. In practice, the bonus may vary from 33 1/3%
to 66 2/3% of the wages of the time saved. The usual bonus share paid to the worker is 50% of
the time saved multiplied by the rate per hour (time-rate). This scheme is also called as Halsey
fifty percent plan
Total wages = time taken*time rate + 50% of time saved * time rate

Advantages:
• Time rate is guaranteed while there is opportunity for increasing earnings by increasing
production.
• The system is equitable in as much as the employer gets a direct return for his efforts in
improving production methods and providing better equipment.

Disadvantages:
• Incentive is not as strong as with piece rate system. In fact the harder the worker works, the
lesser he gets per piece.
• The sharing principle may not be liked by employees.

Illustration 4:

Calculate the earning of a worker under Halsey System. The relevant data is as below :

Time Rate (p.h.) Rs 1.2

Time allowed 16 hours
Time taken 12 hours
Time saved 4 hours

Solution:

Calculation of total earnings :

12 hrs. × 1.2 + 1/2 × (4 hrs. × Rs 1.2) or Rs 15.60 + Rs 1.20 = Rs 16.80

Of his total earnings, Rs 15.600 is on account of the time worked and Rs 1.2 is on account of his share of
the premium bonus.
 MERRICK DIFFERENTIAL PIECE WORK SYSTEM

This method is also known as ‘Multiple piece rate system’. Under this method, three grade piece
rates are used instead of two as in the case of Taylor’s. The features are as follows:
Efficiency Piece Rate
83 % of efficiency Normal rate
Above 83% and up to normal rate 10% above Normal rate
Above 100 % 20% or 30% above Normal rate

This system is an improvement over the Taylor’s Differential Piece Rate system.

Illustration 5:

Calculate the earnings of workers A, B and C under Straight Piece Rate System and Merrick’s Piece Rate
System from the following particulars:

Normal Rate per Hour Rs 10.80

Standard Time per Unit 2 Minute

Output per day is as follows:

Worker A – 780 Units

Worker B – 900 Units
Worker C – 1200 Units

Working hours per day are 16.

Solution:

Earnings of Workers under Merrick’s Multiple Piece Rate System

Particulars A B C
Efficiency level 81.25% 93.75% 125%
(Refer to working note ii)
Applicable wage rate per 0.09 0.099 0.108
unit
Earnings (Rs) 70.20 89.10 129.60
(780 units x 0.09) (900 units x 0.099 ) (1200 units x 0.108)

Working Notes :

(i) Normal wage rate per unit =

Normal Rate per Hour/Standard output per hour = Rs 10.80/120 = 9 Paise
 (ii) Efficiency level

Workers A B C
780
Actual output per day 900 1200
(units)
Standard outputs per 960 960 960
day (units)

Efficiency level achieved

(Actual output units/ Standard output units) x 100
A- 780/960 x 100= 81.25%
B- 900/960 x 100= 93.75%
C- 1200/ 960 x 100= 125%

ROWAN PLAN

Under this method, the worker is again guaranteed wages at the ordinary rate for the time taken
by him to complete the job or operation. The difference between the Halsey Premium Plan and
the Rowan Premium Plan is only in the calculation of the bonus. Under the Halsey Plan, bonus
is a fixed percentage of the wages of the time saved whereas under the Rowan Plan bonus is that
proportion of the wages of the time taken which the time saved bears to the standard time
allowed.

Total wages= time taken*time rate + (time taken/ time allowed) * time saved * time rate

Advantages :

• It is claimed to be fool-proof system in as much as a worker can never double his earnings even if
there is bad rate setting.
• It is admirably suitable for encouraging moderately efficient workers as it provides a better return for
moderate efficiency than under the Halsey Plan.
• The sharing principle appeals to the employer as being equitable.

Disadvantages:

• The system is a bit complicated.

• The incentive is weak at a high production level where the time saved is more than 50 percent of the
time allowed.
 • The sharing principle is not generally welcomed by employees.
Illustration 6:

Calculate the earnings of a worker under Rowan System. The relevant data is given as below:

Time rate (per Hour) Rs1.2

Time allowed 16 hours.
Time taken 12 hours.
Time saved 4 hours.

Solution:

Calculation of total earnings:

= Time taken × Rate per hour +( Time Saved/ Time allowed) × Time taken × Rate per hour

= 12 hours × 1.2 + (4/16) x 6 x 1.2 =Rs16.20

 EMERSON EFFICIENCY PLAN

In this plan bonus becomes payable only when efficiency touches 66 2/3% of the standard laid
down. If a worker takes 20 hours to complete a job for which standard time fixed is 6 2/3 hours,
he is entitled to get some bonus. If he takes more than 20 hours, he gets only the time wages.
The amount of bonus payable increases progressively, with increase in efficiency in such a
manner that at 100% efficiency. The bonus is 20% of the hourly rate. For efficiency beyond
100% additional 1% bonus is payable for each 1 % increase in efficiency beyond 100%; thus, at
110% efficiency bonus payable is 30% (20% upto 100% + 10 for 10% efficiency beyond 100%)
and total wages payable are time wages, for the actual time taken plus 30% of time wages as
bonus.

Output Payment
Up to 66.67% Time rate wages without any bonus
66.67% - 100% Time rate wages + bonus of 20%
Above 100% Time rate wages + bonus 20% + extra bonus of
1% for each 1% increase in the performance
level.

Illustration

Standard output 1,000 units a day.

I Worker produce 500 units

II Worker produces 700 units
III Worker produces 1,000 units
IV Worker produces 1,400 units

First worker works at 50% efficiency and therefore he will obtain wages at time rate, second
worker works at 70% efficiency, therefore he would be paid daily wages as per to time rate plus
4% bonus; the third worker is at 100% level of efficiency; hence he will be remunerated as per to
time rate for hours worked as well as a bonus at 20. The fourth worker's efficiency is 140%. His
remuneration will be the day wage as well as 60% as bonus (40% for time saved and 20% for
bonus).
 BEDEAUX POINT PREMIUM SYSTEM

It's a mix of time and bonus structures. Time study is used to establish the standard time for a
job. The average output per hour is set, and the unit of measure is the 'minute.' An hour is taken
as sixty minutes. Each minute at standard time is called a point – Bedaux’s point or ‘B’. The
quantity of points required for each job must be calculated. If the worker's real time exceeds the
standard time, he or she is compensated on an hourly basis. Excess production is counted in
points, for which a bonus of 75% is allowed to the worker and remaining 25% goes to the
foremen, which itself is a novel feature.

Illustration

Standard time- 20Hrs or 1200 (20x60) B’s minutes

Time taken by worker- 16Hrs or 960 (16x60) B’s minutes
Time wage rate- Rs 2/hr

Time saved by the worker = 1200-960=240 B’s or 240/60=4hrs

Time wage earned= 4x2= Rs.8

His time wages for 16 hours= 16x2= 32

Bonus earned= 75% of 8= 6
His total earning (32+6) = 38

GANTT'S TASK AND BONUS PLAN

This plan is based on careful time and motion study. A standard time is fixed for doing a
particular task, worker's actual performance is compared with the standard time and his
efficiency is determined. If a worker takes more time than the standard time to complete the
task(i.e. efficiency is below 100%) he is given the wages for the time taken by him and if a
worker takes the standard time to perform the task (i.e. efficiency is 100%) he is given wages for
the standard time and a bonus of 20% on the wages earned. If the worker completes the task in
less than the standard time, he is given wages for the standard time plus a bonus of 20% of the
wages for the standard time. In other words, if a worker's performance is more than 100% he is
given piece wages plus bonus at 20% of piece wages. Thus, with every reduction in time, the
plan ensures progressive increase in total wages. For this reason, the plan is also known as
"Progressive Rate System".
Illustration

Rate per Hour = Rs 0.5

High piece-rate= 0.10
Standard Output= 100 units
Time Taken = 8 hrs

If output is 80 units

Earning= 8x0.5= Rs 4 (Since output is less than standard output)

If output is 100 units

Earnings= 8x0.5= Rs 4
Bonus= 20/100x4=Rs 0.8 (Since output is equal to standard output)
Total earnings= Rs 4.08

If output is 120

Earnings= 120x0.10= Rs12 (Since output is higher than standard output)

Output Payment
Output below standard Guaranteed time rate
Output as per normal Guaranteed time rate + bonus of 20% (usually
of time rate)
Output above normal High piece rate normally including 20% bonus