LABOR

[Solution # 01]
Hasley Plan = Rowan Plan
Standard wage rate * 50% time saved = standard wage rate * time saved / time allowed * time taken
Assuming Standard wage rate & time saved being common & cancelled each other in L.H.S & R.H.S,
50% = time allowed / time taken
Time taken = 50% time allowed
Thus time taken is equal to 50% of time allowed; bonus under Hasley Plan & Rowan plan is same.

[Solution # 02]
• Time allowed = 8 hours
• Time taken will be = 8, 7, 6, 5, 4 , 3 , 2 , 1
• Time taken will never be greater than time allowed in normal situation.
• Student should particularly note the language of question carefully.
• Progressively indicates that time taken will be from 8 to 1.
• Hasley Plan = Standard wage rate * 50% time saved
• Rowan Plan = standard wage rate * time saved / time allowed * time taken
• Wages = time taken * wage rate
• Hourly earnings = earnings/time taken

Time Time Time Base Bonus Earnings Hourly Earnings

Allowed Taken Saved Wages
Hasley Rowan Hasley Rowan Hasley Rowan
8 8 7 64 - - 64 64 8 8
8 7 1 56 4 7 60 63 8.57 9
8 6 2 48 8 12 56 60 9.33 10
8 5 3 40 12 15 52 55 10.40 11
8 4 4 32 16 16 48 48 12 12
8 3 5 24 20 15 44 39 14.67 13
8 2 6 16 24 12 40 28 20 14
8 1 7 8 28 7 36 15 36 15

[Solution # 03]
We will have to calculate the profit foregone by calculating the amount of contribution lost and the
additional cost that was incurred as a result of the labor turnover. This is done in the following manner.
I. Actual productive hours: Actual hours worked – unproductive training hours
= 445, 000 – 15, 000 [30% of 30, 000] = 4, 30, 000 actual productive hours.
II. Total hours lost: 100,000 hrs
Sales lost [Rs.8, 303, 300 * 100, 000]/430, 000 = Rs.1, 931, 000
Loss of contribution – 20% of Rs.19, 31, 000 = Rs.386, 200
Statement Showing Profit Foregone
Contribution lost : Rs.3, 86, 200 [As per II above]
Settlement cost due to leaving : Rs. 43, 820
Recruitment cost : Rs. 26, 740
Selection cost : Rs. 12, 750
Training cost : Rs. 30, 490
Profit foregone : Rs.5, 00,000

[Solution # 04]
Hints to answers

Working Notes:
1. Total time wages of 10 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 = Rs. 4,000 = 25 days × 8 hrs. × Rs. 2 × 10 workers
2. Time saved per month:
Time allowed per piece by a worker 2 hours
No. of units produced during the month by 10 workers 1,250 pieces
Total time allowed to produce 1,250 pieces: (1,250 ×2 hours) 2,500 hours
Actual time taken to produce 1,250 pieces: 2,000 hours
Time saved (2,500 hours – 2,000 hours) 500 hours
3. Bonus under Halsey scheme to be paid to 10 workers:
Bonus = (50% of time saved) × hourly rate of wages = 500
Total wages to be paid to 10 workers are (Rs. 4,000 + Rs. 500) Rs. 4,500, if Mr. A considers the
introduction of Halsey Incentive Scheme to increase the labour productivity.
4. Bonus under Rowan Scheme to be paid to 10 workers:
Bonus= Rs. 800
Total wages to be paid to 10 workers are (Rs. 4,000 + Rs. 800) Rs. 4,800, if Mr. A considers the
introduction of Rowan Incentive Scheme to increase the labour productivity.
============
1. (i) Effective hourly rate of earnings under Halsey scheme: = Rs.2.25 (i.e. 4500/2000)
(ii) Effective hourly rate of earnings under Rowan scheme: = Rs 2.40 (i.e. 4800/2000)

2. (i) Saving in terms of direct labour cost per piece under Halsey scheme:
= Labour cost per piece (under time wage scheme) = 2 hours × Rs. 2 = Rs. 4
= Labour cost per piece (under Halsey scheme) = Rs.3.60 (i.e. 4500/1250)
= Saving per piece: (Rs. 4– Rs. 3.60) = Rs. 0.40.
(ii) Saving in terms of direct labour cost per piece under Rowan scheme:
= Labour cost per piece under Rowan scheme = Rs. 3.84 (i.e. 4800/1250)
= Saving per piece = Rs. 4– Rs. 3.84 = Rs. 0.16.
3. From the labour cost per piece under Halsey scheme (Rs. 3.60) and Rowan scheme (Rs.3.84), it is quite
clear that Halsey scheme brings about more saving than Rowan scheme to the concern. But Halsey
scheme does not fulfils the assurance given to the workers about 20% increase in their earnings as it
secures only 12.5%, On the other hand, Rowan scheme secures 20% and fulfils the assurance. Therefore,
Rowan scheme may be adopted.
[Solution # 05]
Hints to Answer
Computation of average inflated wage rate (including overtime premium):
Basic wage rate : Rs. 10 per hour
Overtime wage rate before and after working : Rs. 10 × 175%
Working hours = Rs. 17.50 per hour
Overtime wage rate for Sundays and holidays: Rs. 10 × 225% = Rs. 22.50 per hour
Annual wages for the last year for normal: 1, 00,000 hrs × Rs. 10 time wages =Rs. 10, 00,000
For overtime before and after working hours: 20,000 hrs. × Rs. 17.50 =Rs. 3, 50,000
Wages for overtime on Sundays and holidays: 5,000 hrs. × Rs. 22.50 =Rs. 1, 12,500
Total wages for 1, 25,000 hrs. =Rs. 14, 62,500
Average inflated wage rate Rs. 14, 62,500 = Rs. 11.70 per hour
============

(a) Where overtime is worked regularly as a policy due to labour shortage, the overtime premium is
treated as a part of labour cost and job is charged at an inflated wage rate.
Labour cost chargeable to job XYZ = Total hours × Inflated wage rate
= 1,125 hrs. × Rs. 11.70 = Rs. 13,162.50

(b) Where overtime is worked irregularly to meet the requirements of production,basic wage rate is
charged to the job and overtime premium is charged to factory overheads as under :

Labour cost chargeable to Job XYZ: 1,125 hours @ Rs. 10 per hour = Rs. 11,250.00
Factory overhead: 100 hrs. × Rs. (17.50 – 10) = Rs. 750.00
25 hrs. × Rs. (22.50 – 10) = Rs. 312.50
Total factory overhead = Rs. 1,062.50

(c) Where overtime is worked at the request of the customer, overtime premium is also charged to the
job as under:

Job XYZ: 1,125 hours @ Rs. 10 per hour = Rs. 11,250.00

Factory overhead: 100 hrs. × Rs. (17.50 – 10) = Rs. 750.00
25 hrs. × Rs. (22.50 – 10) = Rs. 312.50
Total Labour cost = Rs. 12,312.50

[Solution # 06]
I. Additions Method: Number of additions/Number of average workers during the
period * 100 = 280 / 2000 * 100 = 14%
II. Separations Method: Number of separations/Number of average workers during the
period * 100 = 65/2000 *100 = 3.25%
III. Replacement Method: Number of replacements / Number of average workers
during the period * 100 = 30/2000 * 100 = 1.5%
IV. Flux Method: ½ [Number of additions + Number of separations] / Number of
average workers during the period * 100 = ½[280 + 65] / 2000 * 100 = 173/2000 * 100 =
8.65%
Note: Average number of workers in all the above methods is computed by taking opening number of
workers + closing number of workers / 2 = 1900 +2100/2 =2000

[Solution # 07]
Cost of labor turnover can be computed by dividing the preventive cost and replacement cost by the
average number of employees. The computation is shown below.
Preventive cost : Rs.86, 000/1000 = Rs.86
Replacement cost : Rs.34, 000 /1000 = Rs.34
Total labor turnover cost = Rs.86 + Rs.34 = Rs.120

[Solution # 08]
Taylor Plan: High task is 100 units

Worker X: 96 units * Rs.4 = Rs.384 [X will get the wages at low piece rate as his output is below the high
task]
Worker Y: 111 units * Rs.6 = Rs.666 [Y will get the wages at high piece rate as his output is above the
high task i.e. standard]
Worker Z: 126 units * Rs.6 = Rs.756 [Z will also get the wages at high piece rate as his output is above
the high task, i.e. standard]

Merrick Plan:

Worker X = High task is 100 units, actual output is 96, this means that the efficiency level is 96%. As per
Merrick Plan, wages of X will be 110% of normal piece rate which is Rs.6.60 per unit = Rs.6.60 * 96 =
Rs.633.6
Worker Y = High task is 100 units, actual output is 111 units, efficiency level is 111%. Y will be entitled for
wages @ 120% of normal piece rate i.e. @ Rs.7.20 per unit. His wages will be, Rs.7.20 X 111 = Rs.799.2
Worker Z = High task is 100 units, actual output is 126 units, efficiency level is 126%. Z will get at higher
piece rate @ Rs.7.20 per unit. His wages will be Rs.7.20 * 126 units = Rs.907.2

Gantt Task and Bonus Plan:

Worker X = Rs.10 * 40 hours = Rs.400 [X will get guaranteed time rate as his output is below the high
task]
Worker Y = Rs.6 * 111 units = Rs.666 [High piece rate as output is above standard]
Worker Z = Rs.6 * Rs.126 = Rs.756 [High piece rate as output is above standard]

[Solution # 9]
Labour cost
(a)
 Total Idle time Worked on Overtime
Worked production
hours hours hours hours
Grade 1 (40 × 40) 1,600 250 1,350
Grade 2 (20 × 46) 920 100 820 (20 × 6) 120

Direct labour Indirect labour

(overhead)
$ $
Grade 1 basic wages (1,350 × $10) 13,500 (250 × $10) 2,500
Grade 2 basic wages (820 × $15) 12,300 (100 × $15) 1,500
Overtime premium (120 x $15 × 1/3) 600
Support staff (5 x 40 × $12) 2,400
Total 25,800 7,000
(b)
Units produced 4,000
Direct labour cost/unit = $25,800/4,000 = $6.45 per unit