QUESTIONS - LABOUR (1)

LABOUR
Question 1
The following information pertains to a week’s work for three employees of a company:

Employees L M N
Total hours worked 60 65 70
Hours of indirect work (included in total hours) 20 10 5
Basic hourly wage rate (Rupees) 60 80 50
Output in units 192 175 150
Time allowed per unit (hours) 0.25 0.40 0.60

Bonus is paid @ 60% of basic wage rate for all time saved. The normal working week is 45 hours. The first five hours of
overtime are paid at basic rate plus 40% and the rest at basic rate plus 60%.

Required:
You are required to calculate Total wages for each employee. (15)
[Spr-09, Q-2]
Question 2
Mid-way Services Limited received an urgent order for installation of 4 machines in a textile mill. Immediately after
receiving the order, the company deputed four engineers on the job. Each engineer was responsible for installation of
one machine. The standard time to complete this job was 50 hours.

It is the policy of the company to pay its engineers on job to job basis. The minimum amount the company pays is based
on standard hours. The payment is made at the rate of Rs. 100 per hour.

In order to speed up the installation work, the company offered the engineers ‘Time Saving Bonus’ (TSB) under which
they would be entitled for the following incentives:

Percentages of time saved to time allowed TSB

0% to 10% 10% of time saved x hourly rate
11% to 20% 20% of time saved x hourly rate
20% to 30% 30% of time saved x hourly rate

In addition to the agreed amount, the customer has agreed to pay the company Rs. 150 for every hour saved on
installation of each machine.
The jobs were completed successfully and the time spent by each engineer is as follows:

Engineers A B C D
Hours spent 41 36 46 50

Required:
(i) Calculate the total earning of each engineer and their earning per hour. (08)
(ii) Compute the net additional revenue earned by the company. (03)
[Aut-06, Q-5]

Question 3
Ishaq Limited manufactures plastic bottles for pharmaceutical companies. It has recently introduced a 100% weekly
group bonus plan with a basic wage of Rs. 150 per hour. Standard production per hour is 50 bottles. Each worker is
supposed to work 8 hours a day from Monday to Friday and 5 hours on Saturday. Presently, there are 20 workers who
are entitled for this plan. Production for the first week under the 100% bonus plan was:

Days Mon Tue Wed Thu Fri Sat

No. of bottles 8,700 7,350 9,750 7,500 8,950 4,550
 QUESTIONS - LABOUR (2)

Most of the workers have raised objection on the company’s bonus plan. They are of the view that bonus calculation
should be based on daily production instead of weekly production. The management of the company has asked you to
determine the impact of such a change.
Required:
Prepare statements showing labour cost per unit under each of the two options. Give reasons for the differences, if any.
(10)
[Spr-08, Q-5]
Question 4
A factory manufactures three components A, B and C. During a week, the following was recorded:
Labour Number of Rate per hour Individual hours
Grade employees (Rs.) worked
I 6 40 40
II 18 32 42
III 4 28 40
IV 1 16 44
Actual output and standard times are given below:
Component Output Standard minutes
per component
A 444 30
B 900 54
C 480 66
The normal working week is of 38 hours. Overtime is paid at a premium of 50% of the normal hourly rate. A group
incentive scheme is in operation and a bonus is paid based on the time saved. The rate of bonus payment is 75% of
normal hourly rate. The time saved is allocated to each labour grade in proportion to the number of hours worked by
each group.

Required:
Calculate the total payroll showing the basic pay, overtime premium and bonus pay for each grade of labour. (12)
[Aut-05, Q-3]
Question 5
(a)
The following information relates to a week’s work for three employees:
Employees A B C
Output (units) 160 276 68
Time allowed (hours per unit) 0.5 0.25 0.75
Basic hourly wage rate (Rupees) 80 100 70
Hours worked as direct labor 48 54 30
Hours worked as indirect labor - - 12
The normal working week is 42 hours. For the first six hours, overtime is paid at 50% above the normal rate. Any further
overtime is paid at double the normal rate. Bonus is paid at three-fifth of the normal rate for the hours saved.
Required:
Using the information given above, calculate the total wages earned by each employee. (08)

(b)
The following is a summary of payroll of LMN Factory Limited for the month of February 2014:
Rs.
Basic salary 420,000
Allowances 147,000
Gross salary 567,000
Deductions:
Loans to staff (13,000)
Income tax (15,500)
Employees’ provident fund contribution (35,000)
Net salary 503,500
 QUESTIONS - LABOUR (3)

The company is also required to pay the following:

▪ Company’s contribution to the provident fund which is equal to employees’ contribution
▪ 5% of the basic salary to a government organization.
Required:
Pass journal entries to record the payroll cost for the month of February 2014. (06)
[Spr-14, Q-3]
Question 6
Pakair Limited manufactures special tools. Information pertaining to payroll costs for the month of April 2010 is as
under:
Department Gross salaries Overtime Income tax
(excluding overtime)
----------------------- Rs’000 ---------------------
Machining (production) 1,000 75 25
Assembly (production) 400 40 15
Tool room (service) 25 5 -
Warehouse (service) 75 15 -

Details of other benefits are as under:

(i) 35 paid leaves are allowed per year including annual, casual and sick leaves.
(ii) Annual bonus equal to one month salary is paid in June.
(iii) The company maintains a contributory Provident Fund in which 8.33% of the monthly salary is contributed by
the employer as well as the employees.
(iv) During April 2010, the employees availed leaves that cost Rs. 85,000.
(v) Advances paid and recovered during the month amounted to Rs. 17,000 and Rs. 28,000 respectively.
(vi) The company follows a policy of accruing bonus and paid leaves on a monthly basis.

Required: Prepare journal entries to record payroll and its disbursements. (12)
[Aut-10, Q-7]
Question 7
Zircon Limited (ZL) manufactures and supplies footballs for both domestic and international markets. Following
information is available from the company's records.

Numbers of skilled workers 250

Standard working hours per month 200
Actual hours per unit of products 1.5
Standard labour rate per hour (Rupees) 42
Variable overhead rate per labour hour (Rupees) 75

The company manufactures 40,000 footballs per month. Overtime is paid to the workers at the rate of 75% over
and above the standard wage rate.

In order to increase the production efficiency and reduce the cost of conversion, the management is currently
evaluating various wage incentive plans. The production manager has suggested the following options to the
management.

Option 1: Introduce a piece wage system at the rate of Rs. 72 per unit. It is expected to improve the current
production efficiency from 65% to 78%.

Option2: Introduce a monthly group bonus plan with a wage of Rs. 48 per hour f o r t o t a l o u t p u t
c a l c u l a t e d o n t h e b a s i s o f standard 1.4 hours per unit of product. No other payment will be made to
workers. This plan is expected to reduce the overtime by 60%.

Required:
Evaluate the above options in contrast with the existing scheme and advise the management about the most
economical option for production of 40,000 footballs. (15)
[Spr-11, Q-3(amended)]
 QUESTIONS - LABOUR (4)

Question 8
Toy Limited is engaged in the production of a single product. On the basis of past history, the management has
estimated the cost of production per unit, as follows:

Rs.
Raw material – 5kg @ Rs. 40 per Kg 200
Labour – 10 hours @ Rs. 25 per hour 250
Variable overheads – 60% of direct labor 150
600

The annual production requirement is 100,000 units. The management has been deeply concerned with the
performance of its labour as it has been witnessing various inefficiencies. The industrial relations department has
recently carried out a study under the guidance of a consultant. It has put forward a plan whereby the company’s wage
policy is to be revised as under:
▪ Rate of wages would be increased by 12%.
▪ Workers who perform their tasks in less than the estimated time of 10 hours per unit would be given a
premium of Rs. 18 per hour saved.
The consultant is of the view that the following efficiencies can be brought about by introducing the above change:
(i) Raw material input per unit includes wastage of 7%. It would reduce to 3%.
(ii) 70% of the workers would work more efficiently and improve their efficiency by 20%.
(iii) Overheads will be reduced to 55% of the revised cost of direct labour (including premium).
(iv) The quality of production will improve and the rate of rejection will be reduced from 4% to 3%. Rejected units
are sold for Rs. 150 each.
Required:
Determine whether it would be beneficial for the company to adopt the wage plan recommended by the industrial
relations department. (14)
[Aut-09, Q-6]

Question 9
Z Limited (ZL) manufactures various products. Following information relating to product-A has been extracted from ZL’s
business plan for the year ending 30 June 2014:

Direct material per unit 12Kg at Rs. 2 per Kg

Average labor rate per worker Rs. 56 per day
Average working hours per day 8 hours
Average labor efficiency 65%
Standard time required per unit of Product-A 2.6 hours
Variable overheads Rs. 10 per labor hour
Fixed overheads 2% of direct material cost
Annual production 25,000 units

In order to improve the production efficiency and reduce cost of conversion, the management has sought suggestions
from the workers. It has announced a reward equal to three months savings in labour cost to the worker, whose
suggestion would be accepted.
In response to management’s offer, one of the workers has suggested to use electric cutter in the manufacturing
process. The proposal is expected to reduce standard time for making each unit of product-A by 20%. It would also
improve labour efficiency from 65% to 80%. The cutter can be purchased at a cost of Rs. 15,000 and is estimated to have
an effective life of one year.
Required:
Assuming there is no beginning or ending inventory of product-A:
(a) Calculate the amount of reward payable to the worker as announced by ZL. (06)
(b) Prepare a statement showing annual cost of production and net savings (if any) in total cost of production of
product-A. (05)
[Spr-13, Q-3]