Labour Costing

Question

In a unit, 10 men work as a group. When the production for the group exceeds the
standard output of 200 pieces per hour, each man is paid an incentive for the excess
production in addition to his wages at hourly rates. The incentive is at half the percentage,
the excess production over the standard bears to the standard production, each man is paid
an incentive at the rate of this percentage of a wage rate of Rs. 2 per hour. There is no
relation between the individual workman’s hourly rate and the bonus rate.
In a week, the hours worked are 500 hours and the total production is 1,20,000 pieces.

a) Compute the total amount of the bonus for the week.

b) Calculate the total earnings of two workers A and B of the group:-
A worked 44 hours and his basic rate per hour was Rs. 2.20.
B worked 48 hours and his basic rate per hour was Rs. 1.90.

Solution

a)
Total Production = 1, 20,000 pieces
Standard output production = 500 * 200 = 1, 00,000 pieces
Extra pieces produced = 1, 20,000 – 1, 00, 000 = 20,000 pieces

Now excess production (20,000) is 20% of the standard production (1, 00,000)

As per the question “The incentive is at half the percentage, the excess production over the
standard bears to the standard production”

Therefore the incentive would be half the excess production = 20% / 2 = 10%
So, Incentive = 10% of Standard Wage = 0.1 * 2 = 0.2 per hour
Total hours worked in the week = 500 hours
Total bonus for the week = 0.2 * 500 = Rs 100

b)
Earnings from worker A = Hours * Basic + Hours * Incentive
= 44 * 2.2 + 44 * 0.2
= 96.8 + 8.8
= Rs 105.6

Earnings from worker B = Hours * Basic + Hours * Incentive

= 48 * 1.90 + 48 * 0.2
= 91.2 + 9.6
= Rs 100.8

Total earning from worker A and B = Rs 206.4