Labour

Dr.
Joseph Anbarasu Page

1 1 12/18/2008
LABOUR
1. Why should the labour cost be controlled?
The second major element of cost in manufacturing concerns is labour cost. Workers
contribute to the concerns through their time and energy. This needs adequate
compensation to them. The compensation is known as ‘wages’. Labour consists of a lot
different individuals with a different mental and physical capacity. Proper control of labour
is, therefore, one of the important tasks of the management.
2. What is the purpose of time keeping?
The objective of time keeping is to provide information for the

1. Preparation of pay rolls
2. Ascertainment of labour cost per unit of product
3. Allocation of overhead cost based on wages
4. Fulfillment of statutory requirements
5. Control of labour cost
6. Determination of productivity of labour in the factory and
7. Promotion of punctuality and order among the workers.
Dr. Joseph Anbarasu Page
2 2 12/18/2008
3. Explain the components of good control of labour cost.
Proper control over labour cost involves the following:

a. Proper system for recruitment, selection, training and placement of workers to jobs
b. Right methods of wage payment
c. Right and healthy working conditions; and
d. Innovative methods of assuring efficient labour performance
4. Describe the two forms of labour cost.
Direct Labour Cost:
Direct labour refers to labour engaged directly in the production of a product. Direct
labour cost is the cost of all labour expended in converting raw materials into
manufactured articles. Such direct costs of labour can easily be identified and allocated to
cost units. It varies directly with the volume of output. It can easily ascertained and
controlled because of its close proximity to the output. Wages paid to direct labour are
known as ‘direct labour cost’. It forms part of prime cost.
Indirect Labour Cost:
It is the remuneration paid to those workers, who are not directly engaged in converting
raw materials into finished products. Such costs cannot be conveniently identified with a
particular product. Supervisors, inspectors, work auditors, instructors, watchmen are
examples of indirect workers. Indirect labour cost is included in overheads.
5. What do you mean by time keeping?
Time Keeping:
3 3 12/18/2008
Time keeping is a system of recording the time of arrival and departure of workers. Arrival
time and departure times of workers are recorded for attendance purpose and for
calculation of wages. It is based on this record that their total entitlement for work under
time rate system is determined.
The process of time keeping is to maintain an accurate record of time of every worker
when he comes in and goes out of the factory. Regular time and overtime are based on this
record.
6. Bring out the various methods of recording the attendance of workers or time keeping.
There are three methods of time keeping of workers.
i) Handwritten Method:
Attendance of each worker is recorded in the register maintained for timekeeping.

The register consists of number of columns for each worker. Entries in the arrival
and departure columns are made by the foreman. Literate workers generally sign
against their entries to avoid dispute later. The method is simple and cheap. The
possibilities of fake attendance or fraudulent marking of attendance may not be
ruled out under this method.
ii) Token or disc Method:
An identification number or token number is allotted to each worker. The number

is suitably painted or engraved on a round metal token with a hole in it. All such
tokens are hung up in a serial order on a board at the factory gate. At the time of
arrival, the worker collects his token from the board and drops in a box kept for
the purpose at the factory gate. After 10 or 15 minutes of the normal time, the box
is removed by the timekeeper. Those arrived late have to hand over their tokens
personally at the time office so that exact time of their arrival can be noted.
Based on the tokens dropped in the box, entries regarding attendance of workers
are made in the Time Book. The time book is passed on to the wage section for
payroll accounting.
This method is no foolproof as a worker may try to get his absentee friends marked
present by dropping their tokens in the box.
iii) Time recording clocks:
This is a mechanical method of recording attendance. It proves to be useful when

the number of workers is large. The time of arrival and departure of a worker is
recorded with the help of clock recorders. Each worker has a clock card, which
bears his identification number. These cards are kept in a rack in a serial order.
When workers report for duties, they take out their cards from rack one, get them
punched by the Time Recording Clock maintained at the factory gate, and place
them in rack two. When they leave, they again get their cards punched with time
of departure and put them back in rack one.
The method is quick, safe, scientific, reliable and accurate method of time
keeping.
7. Is time keeping significant? Give reasons.
Yes, time keeping is a significant aspect. The following are the reasons for time keeping.
4 4 12/18/2008
i) It ensures discipline among workers

ii) It is an in-built system of ensuring punctuality of workers
iii) It boosts morale of personnel
iv) It is an effective method of data collection for statistical purpose
v) It helps in checking idle time and increases output by sticking on to production
schedule
vi) It assists computation of labour cost per unit
vii) It ensures a productive environment in the undertakings
8. What do you mean by time booking?
Apart from recording worker’s time of arrival and departure, it is necessary to record the
particulars of work done by workers and time spent on each job or process.
Recording of worker’s time spent on different jobs is known

as time booking.
In other words, time booking is a method of recording time devoted by a worker on a job,
order or process.
9. What are the objectives of time booking?
The objectives of time booking are as follows:

a. It ensures that the time spent by the worker in the factory has been properly utilised
b. It ascertains the labour cost of work done
c. It provides a basis for allocation of overheads
d. It identifies the idle time so as to control it
e. It checks wastage of time by the worker after he enters the factory
10. Describe various methods of time booking.
The following are the common methods of time booking
Job Cards:
Job tickets/cards are generally used for recording the time spent on each job order. A
card is prepared for each job. Then it is allotted to the worker who takes up that
particular job. The worker makes an entry in this card the time of starting as well as
finishing the job. The worker submits his work along with his job card after the
completion of his job work. He is issued another job card for the next job. Therefore,
only one job card is issued to a worker at a time.
Such job cards serve the purpose of authorising the worker to carry out the job
mentioned therein.
Figure 3.1 shows a model job card.
Figure 3.1 Job Card/Ticket
JOB CARD
Worker's No------ Job No--------
Worker's Name------ Date------
Department----------
5 5 12/18/2008
Machine No--------- Starting Time--------
Operation No------ Finishing Time--------
Time Allowed----------- Hours Taken-------
Job Description Hours Rate (Rs) Amount (Rs.)
Workman------------ Forman------------
Cost Clerk----------
Daily Time Sheet:
Daily time sheet is a daily record of the nature of work done by an individual worker. It
also includes the time spent on each job by him. Entry may be made by either the
worker himself or officials of the time office. The time sheet will be sent to the
foreman everyday for his signature. Then it will be forwarded to the cost office. This is
a simple method of recording work time.
Daily Time Sheets (also known as time cards) include details relating to
Name of the worker

Work Order Number
Description of Work
Quantity Produced
Time of starting and finishing the job
Total hours consumed on the job
Rate of Wages per hour, and
Amount of wages
Weekly Time Sheet:
The procedure adopted for time booking on time sheets is the same as for daily time
sheets. However, the weekly time sheet gives particulars of work done and the time
spent on each job for a full week. The difficulty of consolidation is overcome and the
total hours spent during the work can be compared and reconciled with the attendance
time for the same week.
6 6 12/18/2008
Figure 3.2 Daily Time Sheet
DAILY TIME SHEET
Name: Clock No
Cost Centre Date
Job Work Time Hours Standard Rate Cost

Order Done Hours
No.
On Off Ordinary Overtime
Worker's Signature Foreman's Signature Cost Office
11. What is the role of payroll department in an undertaking?
The payroll accounting is maintained by each organisation with the help of payroll
department. The payroll department has an important task of computation of wages
payable to workers. The important functions of payroll department in the accounting
and control of labour costs may be listed as follows:
a. It records hours worked and wages earned by different workers.

b. It makes payroll deduction.
c. It determines the net amount due.
d. It maintains a permanent earning records of every worker.
e. It provides the treasurer’s office with necessary records to make payments.
12. What do you mean by wage sheet or payroll sheet? Explain the purpose for which it is
prepared.
Wage Sheet:
The main task of payroll department is to prepare payroll sheet. It is commonly known
as wage sheet. It is a consolidated statement showing the gross wages, deductions and
net wages payable to workers. Time or clock cards are the basis for the preparation of
wage sheets. Departmental wages sheets are summarised in a master wage sheet,
which forms the basis for the preparation of the payroll voucher entry in the general
ledger in cost control accounts.
Purpose of Payroll Accounting:
Payroll accounting based on payroll sheet helps an undertaking in

a) providing relevant data for cost control;
7 7 12/18/2008
b) determining the net amount of wages;

c) understanding the wage commitment in a week or a month of different
departments;
d) minimizing the occurrence of errors and frauds in wage payments; and
e) Preparing pay slips for each worker.
13. Describe about idle time.
Idle time represents time lost by time workers. When workers are paid based on time,
there may be some difference between the time paid for and the time actually spent on
production. The difference is known as ‘idle time’. Idle time refers to the time for which
they are paid but no production is obtained. This is a wastage, which needs some effective
control. Idle time is categorised into two. They are (a) normal idle time due to unavoidable
factors and (b) abnormal idle time caused by avoidable factors.
14. Give major causes of idle time with examples.

Idle time may occur due to the following reasons:
a) Administrative Cause:
Idle time is sometimes arising out of administrative decisions. There exists surplus
capacity of plant and machinery in some undertakings due to management decisions.
This will lead to idle time. During the period of depression, the management may
abandon some products from the product line temporarily. The regular workers are not
sent out during these period. This is because the management is not willing to lose
well-trained workers. Such idle time arises out of abnormal situations, which is
generally not controllable.
b) Productive Cause:
Idle time is arising out of many productive causes. Machine breakdown, power failures,
waiting for tools or raw materials, delay due to work order and delay due to
instructions are some causes brought under the category. Idle time arising out of
productive causes is usually controllable by proper planning, strict supervision and
proper maintenance of plant and machinery.
c) Economic Cause:
Fall in the demand for your product is one of the major economic reasons, which gives
rise to idle time. This may be due to severe competition or seasonal character of your
product. In such cases, it is not possible to get rid of workers during slack period. Such
surplus labour force is usually utilized for doing some other jobs and if such
complimentary jobs cannot be found, there will be some idle time, which is beyond
control.
15. How would you treat the idle time in cost accounting?
Normal Idle Time:
This is wastage of labour time. Normal idle time cannot be totally avoided. Therefore,
it is borne by the employer. For example, an employee takes time to reach from the
entrance gate to the shop floor, where he works. The cost of normal idle time may be
treated in two ways. They are as follows:
8 8 12/18/2008
a. It is generally charged to factory overhead. Idle time is classified according to causes

and each type of idle time. It is allotted a separate standing order number. This will to
an effective control.
b. Wage rate may be inflated. It is because to make allowance for normal loss of labour
time.
Example 3.1
The production time of a worker is only 7 hours during an 8 hours

day. What is the inflated wage rate if he is paid Rs.10 per hour?
The inflated wage rate is Rs. (8/7) X Rs.10 = Rs.11.43
Abnormal Idle Time:
Abnormal idle time arises due to reasons in no way connected with usual routine
manufacture and for which management must pay. For example, time lost due to
strikes and lockouts, time lost in waiting for raw material etc. Poor planning,
inefficient executions are some reasons for occurrence of abnormal idle time. It is
generally adjusted through the costing profit and loss account.
16. Explain the term ‘overtime’. What are the disadvantages of overtime?
Overtime:
It refers to a work done by an employee beyond normal working hours. The Factories
Act lays down the rules for normal working hour. Any employee working for more than
9 hours per day or more than 48 hours per week is entitled to overtime payment. The
Factories Act prescribes that the normal wage rate is to be doubled to compensate the
overtime work. Therefore, the overtime work is a costly affair, which should be
avoided.
Disadvantages of having overtime work:
(a) It leads to excessive labour cost

(b) Diminishing labour efficiency gives rise to deteriorating labour productivity
(c) It has a bad effect on the health of workers
(d) Excessive use of plant and machinery gives rise to high wear and tear
(e) There will be escalation of factory overhead. e.g., lighting etc.
(f) Widespread discontent among workers due to uneven distribution of overtime is
another demerit.
17. Explain the treatment of overtime with examples
The treatment of overtime cost in cost accounting depends upon the circumstances
necessitating overtime work. Additional payment for overtime should be charged as
follows:
Nature of Overtime Charged to

1. Due to customer’s request to complete a JOB directly
job with in a specified period
2. Due to general pressure of work GENERAL OVERHEAD

9 9 12/18/2008
3. Due to delayed schedule DEPARTMENT

4. Due to loss of time for unavoidable COSTING PROFIT AND LOSS
reasons ACCOUNT
5. Due to seasonal rush and peak load PRIME COST
18. Describe the term ‘Labour Turnover’. How is it measured?

It is a common thing that workers in an undertaking leave the employment and new
workers join in place of those leaving. The change in work force is known as labour
turnover.
Labour turnover is defined as the rate of change in the

composition of the labour force in the organisation.
Though labour turnover is a normal process, the frequent changes in the composition of
labour affect the continuity as well as the productivity of the organisation.
Labour turnover can be measured by two methods.
a. Separation method:
This method takes into account only those workers who have left during a particular
period. The formula is:
No. of workers left during a period
Labour Turnover Rate = X 100
Average no. of workers during the period
b. Replacement method:
This method considers only those workers who join in place of those who have left.
Its formula is:
No. of workers replaced during a period

If new workers are engaged for expansion programme or any other such purpose, they
are not considered for this composition.
c. Flux method:
This method shows the total change in the composition of labour force due to
separation and additions of workers. The formula is:
This method considers only those workers who join in place of those who have left.
Its formula is:
No. of workers left + No. of workers replaced
Megaton Co. has following information:

10 10 12/18/2008
Example 3.2
Rupees
Number of workers on 1 Jan 2001 1000
Number of workers on 31 Dec 2001 1200
Number of workers resigned 70
Number of workers discharged 20
Number of replacement 80
Calculate labour turnover

Solution 3.2
Formula
Average Number of workers (1000+1200)/2 = 1100
Number of workers left (70+20) = 90
1. Separation Rate (90/1100)/100 = 8.18%
2. Replacement Rate (80/1100)/100 = 7.27%
3. Flux Rate ((90+80)/1100)/100= 15.45%
19. What are the causes of labour turnover?
Factors that cause labour turnover may be grouped into two categories:
a. Avoidable Causes: This includes
i) low wages and allowances

ii) Unhappy relations with co-workers and supervisors
iii) Unsatisfactory working conditions
iv) Trade union rivalry
v) Lack of medical facilities, transport facilities and so on
vi) Inadequate job security and retirement benefits
b. Unavoidable Causes:
i) Personal dislike for job or environment

ii) Death or retirement
iii) Illness or accident
iv) Domestic disputes
v) Discharge on disciplinary grounds
vi) Marriage.
20. What are the effects of labour turnover?
A high rate of labour turnover means the workers often leave. They do not stay for
long. Old workers generally possess more experience than new workers possess.
Replacement of workers, therefore, declines the overall efficiency. The gap between
the old and the new labour often brings down both quality and quantity of output.
Undue labour turnover gives rise to an additional cost to the organisation.
These additional costs may be broadly classified into two broad categories – (I)
preventive, and (ii) Replacement costs.
(a) Preventive Costs:

11 11 12/18/2008
The costs, which are incurred to keep the work force satisfied, are known as
preventive costs. These include cost of personnel management, cost of welfare
activities and services, cost of medical services, pension schemes, extra bonus and
other perquisites.
(b) Replacement Costs:
These costs include all such losses and wastage arising because of the inexperienced
new labour force replacing the existing experienced group. These include cost of
recruitment of new employees, cost of training new workers, loss of output, loss due to
inefficiency of new workers, cost of accidents and cost of scrap and defective work of
new workers.
21. How do you control labour turnover?
Labour turnover is expensive. It should be minimised because it results in increased

cost of production. Some of the steps are to be initiated by the management to
minimize labour turnover. They are as follows:
a. Institute a proper system to redress the grievances of employees
b. Create congenial atmosphere in the factory
c. Provide adequate welfare facilities to the workers
d. Improve workers’ morale
e. Ensure workers’ participation in management
f. Introduce a suitable policy of promotion and transfers and
g. Evolve a sound system of recruitment and training.
22. Describe the requisites of a good system of labour remuneration.
The term ‘remuneration’ refers to the total monetary earnings of employees. It includes
wages according to time or piece basis and other financial incentives. There are various
methods of remunerating labour. Each method has its merits and demerits. However, a
good method of wage payment should
(a) produce the best quality and quantity of work
(b) be satisfactory to both employer and employee
(c) be clearly defined and intelligible to workers
(d) be easy and simple
(e) guarantee a minimum wage for the time devoted by the worker
(f) ensure compensation to workers in case of power failure, machine break-down for
which he is not responsible
(g) reduce labour turnover and absenteeism
(h) be flexible
(i) avoid disparity of pay in similar level of operation
23. Explain and evaluate the time wage system?
Wages are based on the amount of time spent by worker inside the factory. He may be
paid on hourly basis, daily basis or monthly basis.
Calculation of wages under this method of remuneration takes into account

a. the time for which the workers are engaged on the job and
b. the rate per unit of time fixed for payment.
Example 3.3
A worker gets Rs. 15 per hour. He works for 8 hours per day. He has
12 12 12/18/2008
been present for duties on 25 days during the month.

What is his wage for the month?
Solution:
His wage based on Time Rate will be: Rs.15X8X25=Rs.3000/-
Advantages of Time Rate System:
(a) It offers a fixed minimum wage

(b) It ensures simple calculation
(c) It makes a stable and secure return to the workers
(d) It ensures quality, care and efficiency
(e) It promotes a sense of equality and unity among the workers
(f) It is an economical system in respect of wage administration, material use, plant
operation and quality control.
Disadvantages of Time method of wage payment:
(a) It ignores the individual quality and quantity of output

(b) It reduces personal initiative to work faster
(c) It treats both efficient and inefficient workers at par
(d) It increases the cost of labour per unit because of the tendency to consume more
time in finishing a job
(e) It needs a close supervision to ensure continuity of operation
24. Explain and evaluate piece wage system
A worker is paid a fixed amount per unit produced without any regard to the time
taken under the piece rate system. The rate of payment under this method is related
to the quantity of work done i.e., per unit of output, per article, per job or per
commodity. The total units produced or manufactured by the worker during a period
form the basis of computation of his wages for the period.
Example 3.4
The rate of labour per chair is Rs. 80/- The worker has completed 20
chairs during a week. What is the wage of the worker?
Solution:
His wage based on piece rate will be: Rs. 80 X 20 = Rs.1600
Advantages of Piece Wage System:
(a) The method provides a strong incentive because the remuneration is in direct
proportion to the worker’s effort.
(b) It simplifies costing because labour cost per unit is easily known in advance
(c) The overhead per unit is reduced because of high production.
(d) The piece rates are fixed after a careful time and motion study. Therefore, the
system contributes a sound basis for production control.
(e) Workers are self-motivated to maximise their income. Therefore, strict supervision
is not required
(f) The method is simple and is easily understood by the workers.
Disadvantages of Piece Wage System:
(a) It ignores quality of products in an effort to maximize output.

13 13 12/18/2008
(b) It destroys the long-term interest and continuity of engagement in the organisation
of the workers.
(c) It creates dissatisfaction among workers owing to disparity in wages.
(d) It needs a continuous supervision over the quality of operation.
(e) It enhances wastage of materials.
(f) It declines the level of labour discipline.
25. What is the main purpose of incentive plans?
Incentive plans attempt to combine the good points of both the systems. The primary
purpose of an incentive plan is to induce a worker to produce more to earn a higher
wage and at the same time to reduce unit costs. Producing more in the same period
should result in higher pay for the worker naturally. It should result in a lower cost per
unit for fixed factory overhead and for labour cost.
26. What are the different methods of remunerating labour? Explain any one of them in detail.
Premium Bonus Plans:
Premium Bonus Plans are known as Incentive Systems of wage payment. The system of
wage payment under this plan aim at inducing workers to increased efficiency and
greater output. Therefore, the plan is beneficial to both employer and employee. They
combine the basic ideas of time and piece rate systems with an aim to avoid the
demerits of these methods. They strike a balance between the two.
The main features of most incentive plans are:
(a) They combine both time and piece rate systems

(b) The benefit of labour productivity goes to employer under time wage system and
the benefit of piece rate system goes to workers. The benefit of premium bonus
plan goes to both employer and employee.
(c) They link payment to production either directly or indirectly
(d) Time wages are guaranteed to all workers
(e) They check the speed so as to that workers neither tend to slow down nor increase
their speed
(f) In addition to normal time wages, they ensure a bonus based on the time saved
(1) Halsey Plan:
F. A. Halsey, an American Engineer, evolved a method of incentive. The method

recognises individual efficiency. It advocates a bonus based on time saved. A standard
time is fixed for doing a job, by time and motion study. The main features of his plan
are as follows:
(a) Standard time and standard work are prescribed in advance.

(b) Workers are paid for the actual time they take to finish a job as per the
time rate
(c) If an employee completes the job less than the standard time, he is
entitled to receive a bonus for the time saved.
(d) A bonus equal to 50% of the wage time saved is paid to the workers as a
reward to his good work
(e) Workers, who fail to achieve the standard, get the time wage
The rate of bonus under the Halsey Premium Plan may change according to the policies
of an undertaking. It may be 1/3 of the wages of time saved in some cases.
14 14 12/18/2008
Evaluation:
It is a simple system to operate. It is easily understood by employees. It guarantees the

hourly wages to workers for the actual time. However, fixation of standard time is a
difficult process. Employees, however, feel that they do not get the full benefit for the
time saved under this system.
Method of Computation:
Total Earnings of the worker

(Time Rate X Time Taken) + (1/2 X Time Saved X Time Rate)
Example 3.5
The standard time for producing 250 articles is 65 hours. The rate of
wages is Rs. 2.50 per hour. The actual time taken for producing 250
articles is 55 hours. What are the earnings of the worker under
Halsey plan?
Solution 3.5
1. Total Earnings of the worker =

(Time Rate X Time Taken) + (1/2 X Time Saved X Time Rate)
(Rs. 2.50 X 55 hours) + (1/2 X 10 X Rs. 2.50) =Rs. 150
2. Effective Wage rate per hour = (150/55 hours)= Rs. 2.72
(2) Halsey Weir Plan:
This method is more or less similar to the Halsey plan except that in Halsey Weir plan
the bonus is equal to 30% of the time saved.
(3) Rowan Premium Plan:
Rowan plan is also similar to Halsey plan, except in the calculation of bonus. The main
features of his plan are:
(a) Workers receive remuneration based on actual time taken by them in
completing the job.
(b) Workers receive bonus for the time saved i.e., for the difference between the
standard time and actual time.
(c) Bonus is calculated as a proportion of the time wages as time saved bears to
the standard time.
The Rowan plan also guarantees wages on time basis.
Its formula is:
1. Bonus = (Time Saved/Time allowed) X Time taken X Time rate

2. Earnings = (Time taken X Time rate) + Bonus
Example 3.6
The standard time for producing 250 articles is 65 hours. The rate of
15 15 12/18/2008
wages is Rs. 2.50 per hour. The actual time taken for producing 250
articles is 55 hours. What are the earnings of the worker under
Halsey plan?
Solution 3.6
1. Bonus = (Time Saved/Time allowed) X Time taken X Time rate

= (65-55/65) X 55 X Rs. 2.50 = Rs. 21.15
2. Earnings = (Time taken X Time rate) + Bonus
= (55 X Rs. 2.50) + 21.15385 = Rs. 158.65
3. Effective Wage Rate per hour = Rs. 158.65/55 = Rs. 2.89
Evaluation:
The merits and demerits of Rowan plan are similar to those of Halsey Plan. An
additional advantage under Rowan plan is that the worker is not induced to rush
through the work because if time saved is more than 50% of the standard time, the
bonus will come down. However, the calculation of bonus is complicated.
You may want to do sum, which comprises all the above models. Try to understand the
example as follows first and then try to do sums found at the end of the chapters on
your own.
Example 3.7
The standard time allowed to complete a job is 100 hours and the hourly rate of wage
payment is Rs. 5. The actual time taken by the worker to complete the job is 80 hours.
Calculate the total wages of the worker based on
(a) Time Rate
(b) Piece Rate
(c) Halsey Plan
(d) Rowan Plan
Solution 3.7
1. Time Rate = 80 units X Rs. 5 = Rs. 400

2. Piece Rate = 100 units X Rs. 5 =Rs. 500
3. Halsey Plan
Basic Wages = 80 units X Rs. 5 = Rs. 400

Bonus =0.5 X 20 units X Rs. 5 = Rs. 50
Total = Rs. 450
4. Rowan Plan
Basic Wages = 80 units X Rs. 5 = Rs. 400

Bonus = 0.2 X 80 units X Rs. 5 = Rs. 80
Total = Rs. 480
16 16 12/18/2008
Comparative Earnings per Hour

Rupees Units Rupees
Time Rate = Total Cost/Actual units 400 80 5.00
Piece Rate = Total Cost/Actual units 500 80 6.25
Halsey Plan = Total Cost/Actual units 450 80 5.62
Rowan Plan = Total Cost/Actual units 480 80 6.00
27. What is meant by differential piece rate system? Explain various differential rate systems.
There is another dimension of thought in respect of incentive methods apart from

Halsey and Rowan premium plans. The differential piece rate system seeks to
overcome the disadvantage by paying at different rates for different levels of
efficiency reflected in the output. This system believes in payment of wages to labour
based on piece rates varying with the level of efficiency of workers.
In other words, a specific level of output is fixed as the standard. The level is stated in
percentage. Then, different piece rates are determined for different levels of output
below and above the standard.
Some of the exponents of differential piece rate system are

(a) Taylor
(b) Gantt
(c) Emerson
(d) Merrick
Taylor System:
The main features of the system are:

(1) It rewards efficient workers by an increased piece rate beyond a certain level
of output
(2) It distinguishes between workers through two types of piece rates: (a) a lower
rate for sub-standard performance (e.g., 80% of piece rate), and (b) a higher
rate for standard and above standard performance, which is much more than
time wages (e.g., 120% of piece rate)
(3) It acts as an additional incentive to expert workers towards maximisation of
production; and
(4) It ignores any form of guaranteed day wages
Evaluation:
It is simple to understand. It stimulates workers to achieve high rates of production.
This method attracts only the efficient workers. However, it does not guarantee
minimum wages and it affects the quality of work.
Example 3.7
Ascertain the wages paid to workers Somu and Balu under Taylor’s Differential Piece
Rate system:
Standard time allowed = 40 units per hour
Simple time rate wage = Rs. 4 per hour
Differential piece rates to be applied:
75% of piece rate when below standard
125% of piece rate when at and above standard
The workers have produced in a day of 8 hours as follows:
Somu = 240 units; Balu = 400 units.
(B.Com, Madras, March 1993)
17 17 12/18/2008
Solution 3.7
Calculations:
1. Standard time allowed = 40 units per hour
2. Time rate = Rs. 4 per hour
3. For 40 units (per hour), the time rate is Rs. 4 per hour
4. For 1 unit, the time rate is = (4/40) = Rs. 0.10 or 10 paise
5. Low price rate = 75% of price rate = Rs. (75 X 0.10)/100 = Rs. 0.075
6. High price rate = 125% of price rate = Rs. (125 X 0.10)/100 = Rs. 0.125
7. At 40 units per hour, standard output for 8 hours = 320 units
Answer
1. Somu produces 240 units. (Less than the standard 320). Hence, he receives at
the lower piece rate. Hence, Somu gets = 240 units X 0.075 = Rs. 18.00
2. Balu produces 400 units. (More than the standard 320). Hence, he receives at
the higher piece rate. Hence, Balu gets = 400 units X 0.125= Rs. 50.00
Gantt Task Bonus Plan:
This is a combination of time and piece wage systems. A standard time is determined
for achieving a particular task by time and motion study. Workers’ efficiency is
ascertained by comparing the actual performance with the standard set.
A worker may fail to achieve the standard. i.e., he takes more time to
complete the standard task. His efficiency is treated to be below 100%. He
receives wages at time rate for the time taken.
Another worker may reach the standard. His efficiency is treated in par with
100%. He earns wages at the time rate plus a bonus of 20% on wages earned.
Another worker may be above the standard. His efficiency is considered to be
above 100%. He receives wages at piece rate plus bonus of 20% on wages
earned.
Evaluation:
It is simple and easily understandable. It is a good system for beginners, who are
guaranteed time wages. It offers good incentive to hard work. It stimulates production
since foremen are paid bonus. However, the system does not encourage efficiency if
workers feel contented with guaranteed time wages. It groups employees into
competing categories, which is not good for organisational growth.
Example 3.8
Standard rate Rs. 5 per hour

Standard Hours for the job 8 hours
Bonus 20% of standard time
Worker A completes work in 10 hours
Worker B completes work in 8 hours
Worker C completes work in 6 hours
Compare the earnings of A, B, and C under Gantt Task Bonus Plan.

18 18 12/18/2008
Solution 3.8
Wages for 10 hours at Rs. 5 per hour Rs. 50

Wages for 8 hours at Rs. 5 per hour = Rs. 40 + 20% of 8 hours = 40 + 8 Rs. 48
Wages for 6 hours = Wages for 8 hours at Rs. 5 per hour = Rs. 40 + 20% on 8 Rs. 48
hours
Earnings of Workers per Hour

A’s earnings per hour = (Rs. 50/10) = Rs. 5
B’s earnings per hour = (Rs. 48/8) = Rs. 6
C’s earnings per hour = (Rs. 48/6) = Rs. 8
Emerson Efficiency Plan:
It is also known as Emerson Empirical Plan. This plan guarantees time wages. It also
ensures an arbitrary bonus at different levels of efficiency. The following are the basic
premises of Emerson plan.
(a) A standard output is determined, which is equivalent to 100%

(b) If a worker completes his job in standard time, his efficiency is equivalent to 100%
(c) If he takes double time to complete the job, his efficiency is equivalent to 50%
(d) A worker receives hourly rate of wages without any bonus up to 662/3% efficiency.
(e) A worker receives time wages, with bonus at a stated ratio of time wages, beyond
662/3% efficiency.
(f) The rate of bonus increases gradually with increase in the output; the scheme
contains about 32 differentiating rates at different levels of efficiency
See the two tables presented and try to understand the mechanism behind the plan
STANDARD TIME (20 hours)

Time taken to complete the job Level of Efficiency
20 hours 100%
16 hours 125%
40 hours 50%
Emerson Wage Plan

Level of Efficiency Bonus Rate
662/3% Guaranteed time
90% 10%
100% 20%
Above 100% Time Wages + 20% Bonus + Wages for Time saved
125% Time Wages + 20% Bonus + 25% of Time saved
Look at the Example 3.9 and see how bonus and wages are calculated under the
Emerson Efficiency Plan.
Example 3.9
Standard Output 6000 units

Worker W produces 3600 units
Worker X produces 4800 units
Worker Y produces 6000 units
Worker Z produces 7200 units
19 19 12/18/2008
Estimate the bonus rate for W, X, Z and Y under Emerson Efficiency System.
Solution 3.9
Worker Std. Output Efficiency Payment

Output Level
W 6,000 3600 60% Wage at time rate
X 6,000 4800 80% Daily wage at time rate + 4% bonus
Y 6,000 6000 100% Time rate for hours worked + 20% bonus
Z 6,000 7200 120% Day wage + 20% Bonus + 20% for time saved
Example 3.10
An employee working under a bonus scheme saves time in a job for which the standard
time is 60 hours. Calculate the rate per hour worked and wages payable to a worker, if
incentive bonus of 10% on the hourly rate is payable. The standard time (viz., 100%
efficiency) is achieved. A further incentive bonus of 1% on hourly rate for each 1% in
excess of that 100% efficiency is payable. Assume that normal rate of payment is Rs. 5
per hour. Actual time taken is 50 hours.
(B. Com., Calicut, Oct 1987)
Solution 3.10
Efficiency = (Standard time/Actual time) X 100 = (60/50) X 100 =120%

Normal Wage Rate ----------------------------------------------------------------- Rs. 5.00
Incentive Bonus
For 100% efficiency, 10% on hourly rate = (5/100) X 10 = -------------------- Rs. 0.50
For 20% extra efficiency, 1% on hourly rate = (5/100) X 20 (for each 1%
in excess of 100% = ----------------------------------------------------------------- Rs. 1.00
Hourly Rate Rs. 6.50
Wage payable : 50 hours @ Rs. 6.50 Rs. 325.00
Merrick Differential Piece Rate System:
It is also known as ‘Multiple Piece Rate Method’. The method consists of three piece
rates, unlike the Taylor’s system, which has only two piece rates. It is a reformed
version of Taylor’s method. The basic premises of this scheme are
a. Workers get ordinary piece rate up to 83%
b. He gets 110% of ordinary piece rate between 83% and 100% and
c. He earns 120% of ordinary piece rate above 120%
Evaluation:
There is no penalty for those who perform below the standard. It is beneficial to
beginners and trainees. Reward will be higher for performers. However, it does not
guarantee day wages to workers. The standards set may be too high to be reached by
workers of normal efficiency.
Example 3.11
Estimate the remuneration to be paid to a worker under Merrick Differential Piece Rate
System.
Standard Production per hour 6 units

20 20 12/18/2008
Normal rate per hour Rs. 1.20

In an 8 hour day, units produced by a worker 32 units
(B. Com., Madras)
Solution 3.11
Standard Production per hour 6 units

Normal rate per hour Rs. 1.20
Piece Rate = (1.20/6) Re. 0.20
Worker’s Efficiency
Standard Output = ( 6 units X 8 hours) = 48 units
Actual Output = 32 units
Worker’s Efficiency = (32/48) X 100 = 66.66%
Answer
Less than 83%, worker receives ordinary piece rate 32 X Re. 0.20 Rs. 6.40
28. Explain the group bonus scheme.
Group Bonus Scheme:
Individual incentive plans become inappropriate when production depends on the

collective effort of a group. For example, group effort alone is required in case of
construction industries like construction of bridges and roads. It is, therefore,
necessary to evolve a bonus scheme for collective efficiency.
The main features of the group bonus system are:

a. Bonus is given for collective efficiency in production
b. Bonus is payable to a group of workers for their joint output over and above the
given target
c. Members of the group gets their bonus based on agreement
d. Production is considered to be a team effort governing the efficiency of
performance
e. The aim is to create a team spirit for increased production and lower cost per unit.
29. What is work study? Explain its components.
Work Study:
The study of the technical aspects of production is known as Work Study. The
successful implementation of incentive systems of wage payment depends on work
study. Work study ensures overall improvement by saving time, eliminating the loss of
material, evolving new methods of work and lowering costs. It consists of method
study and work measurement.
Method Study:
Method study is a technique adopted by work study engineers for making detailed
investigation of the way in which production process is carried on. It covers the
following aspects:
(a) Examination of various tasks undertaken
(b) The methods used in their performance
21 21 12/18/2008
(c) The sequence of operations

(d) Plant and equipment available and
(e) The factory layout.
Method study aims at determining the right and effective way of doing jobs. It leads to
effective use of resources and improved method of production.
Work Measurement:
It is known as time study and it follows motion study. Both of these techniques taken
together are known as Work Measurement. Work measurement is a technique of
establishing standard times after standardisation of methods and establishment of a
measure for the work contents of jobs or operation.
Motion Study:
Motion study is the study of the movements of workers and machines in performing the
operation. Its object is to identify and eliminate unnecessary and wasteful motions by
workers and machines operated by them. It aims at making effective use of human
resources.
Time Study:
Once the improved methods of performance are ensured, it is necessary to determine

the time required finishing a particular task. This involves the use of time study in
which the time study engineer, with the help of a stopwatch, records the time taken by
an operator, under normal conditions. The time that is thus determined is known as the
standard time or time allowed for a particular job.
30. What do you mean by job evaluation? What are the main characteristics of job evaluation?
Job Evaluation:
Job evaluation is a technique that attempts to show the relative worth of jobs in a
reasonably objective manner. It is a systematic way of appraising the worth of each job in
relation to other job. The application of this technique helps in determining the ranking of
various jobs in some order of importance. For example, the job of an electrician and a
machine operator may appear to be quite different. If they are of the same relative worth
requiring similar intelligence, skill etc., both of these jobs should be paid at the same rate.
The following characteristics of jobs are taken into account in job evaluation:
a. Knowledge and skill
b. Physical effort and Mental effort
c. Responsibility for equipment handled
d. Working conditions
31. List out the uses of job evaluation

The uses of job evaluation are:
1. It tells us the wage value of each job
2. It makes wage administration simple by bringing uniformity in wage rates
3. It helps in finding right person for the right job
4. It ensures good industrial relations
5. It facilitates merit rating, selection, training, fixation of incentive pay,
improvement in working conditions etc
32. What are the various methods of Job Evaluation?

22 22 12/18/2008
a. Ranking Method:
Various jobs are ranked from the highest to the lowest in the order of their
importance, responsibility, skill and effort required. Each job is compared with other
job and valued. The wage rate of each job is based on job evaluation. The method is
simple and easy to install. However, the method is not very effect because it cannot
make accurate measurement of jobs.
b. Point Rating Method:
This method of job evaluation is based on points system. This method involves the
breaking up each important job based on the factors such as skill, effort and
responsibility. They are the input factors required in the performance of different jobs.
Thereafter, jobs are grouped based on the identical input factors. Jobs involving
different degrees of skill and effort and varying in responsibility are assigned weights
on their relative importance. The total of weights gives us the value of each job and
different wage rates are fixed for different jobs on these totals.
c. Grading Method:
Numbers of grades of jobs are pre-determined under this method. The existing jobs in
the organisation are bases for pre-determination. Then all jobs are placed under these
pre-determined grades. The skill, effort and responsibility associated with the existing
job are the bases for grading.
If grades are predetermined and jobs are placed in these grades, the various jobs in the
same grade may be treated alike for the fixation of wages. This method is simple and
inexpensive. It is widely used method as it is more accurate than the ranking method.
33. What do you mean by merit rating? What are its advantages?
Merit Rating:
While job evaluation is concerned with evaluating a job, merit rating determines the
relative worth of each worker.
Merit rating is a systematic evaluation of an employees merit in terms of

the requirement of the job
It seeks to rate an employee’s performance on records of performance. Its aim is to

help the personnel department whether a worker should be rewarded by promotion or
penalised by demotion. The following are the steps in merit rating:
(a) Decide the desirable qualities to be found in workers; the attributes like
attendance, sincerity, ability, initiative, accuracy, willingness etc.,
(b) Grade the qualities to reflect the importance of each
(c) Use the point system; and
(d) Add the points for each worker and rank them.
Advantages of merit rating:
(a) It determines the fair rates of pay to employees based on their rating
(b) It can be used as a fair and scientific basis for transfer, promotion or discharge
of employees
(c) It highlights workers’ strong points and reveals their weak points
(d) It increases labour productivity
(e) It improves labour relations by linking reward to merit; and
23 23 12/18/2008
(f) It reduces labour turnover
34. What are the limitations of merit rating?

The following are the limitations of merit rating:
a. It leads to subjective judgement
b. Those who do the task of merit rating may be influenced by the past records of
employees; and
c. The incentive offered may not be strong enough to motivate the employees.
Worked-out Exercises
Exercises 3.1
From the following information, calculate the labour turnover rate and labour flux
rate:
Number of workers at the beginning of the year 3800

Number of workers at the end of the year 4200
During the year, 40 workers left while 160 workers are discharged. Sixty workers are
recruited during the year. Of these, 150 workers are recruited because of leaves and
the rest are engaged in accordance with an expansion scheme.
B. Com., Bharathidasan, April 1988
Answer 3.1
Labour turnover rate (replacement method)

= (Number of replacements/Average number on rolls) X 100
= (150/4000) X 100 = 3.75%
Flux Rate
= ((No. of separations + No. of replacements))/Average no. in rolls) X 100
= (200 + 600/4000) X 100 = 20%
Exercises 3.2
Calculate the earnings of workers A and B under straight piece rate system and Taylor’s
differential piece rate system from the following particulars:
Normal rate per hour = Rs. 1.80

Standard time per unit = 20 seconds
Differentials to be applied:
80% of piece rate below standards
120% of piece rate at or above standard
Worker A produced 1,300 units and worker B produced 1,500 units per day of 8 hours.
Solution 3.2
Rate per hour Rs. 1.80

Standard time per unit 20 seconds
24 24 12/18/2008
Number of units per hour = (60 X 60)/20 = 180 units

Piece rate for 180 units in an hour Rs. 1.80 per hour
Piece rate for 1 unit = (1.80/18) = Re. 0.01
Low piece rate: 80% of piece rate = (80 X 0.01)/100 = Re. 0.008
High piece rate: 120% of piece rate = (120 X 0.01)/100 = Re. 0.012
Standard Output for 8 hours = (180 X 8) = 1440 units
Straight Piece Rate
A gets for 1300 units @ Re. 0.01 Rs. 13
B gets for 1500 units @ Re. 0.01 Rs. 15
Taylor’s Rate:
A at lower piece rate = 1300 X Rs. 0.008 = Rs. 10.40
B at higher piece rate = 1500 X Rs. 0.012 = Rs. 18.00

Labour

Diunggah oleh

Informasi Dokumen

Deskripsi Asli:

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Labour

Diunggah oleh

Hak Cipta:

Format Tersedia

Dr.

Joseph Anbarasu Page

2. What is the purpose of time keeping?

The objective of time keeping is to provide information for the

3. Explain the components of good control of labour cost.

Proper control over labour cost involves the following:

4. Describe the two forms of labour cost.

Direct Labour Cost:

Indirect Labour Cost:

5. What do you mean by time keeping?

Attendance of each worker is recorded in the register maintained for timekeeping.

ii) Token or disc Method:

An identification number or token number is allotted to each worker. The number

iii) Time recording clocks:

This is a mechanical method of recording attendance. It proves to be useful when

7. Is time keeping significant? Give reasons.

i) It ensures discipline among workers

8. What do you mean by time booking?

Recording of worker’s time spent on different jobs is known

9. What are the objectives of time booking?

The objectives of time booking are as follows:

10. Describe various methods of time booking.

The following are the common methods of time booking

Figure 3.1 Job Card/Ticket

Worker's No------ Job No--------

Worker's Name------ Date------

Machine No--------- Starting Time--------

Operation No------ Finishing Time--------

Time Allowed----------- Hours Taken-------

Job Description Hours Rate (Rs) Amount (Rs.)

Daily Time Sheet:

Name of the worker

Weekly Time Sheet:

Figure 3.2 Daily Time Sheet

DAILY TIME SHEET

Job Work Time Hours Standard Rate Cost

Worker's Signature Foreman's Signature Cost Office

11. What is the role of payroll department in an undertaking?

a. It records hours worked and wages earned by different workers.

Purpose of Payroll Accounting:

Payroll accounting based on payroll sheet helps an undertaking in

b) determining the net amount of wages;

13. Describe about idle time.

14. Give major causes of idle time with examples.

Normal Idle Time:

a. It is generally charged to factory overhead. Idle time is classified according to causes

The production time of a worker is only 7 hours during an 8 hours

Abnormal Idle Time:

Disadvantages of having overtime work:

(a) It leads to excessive labour cost

17. Explain the treatment of overtime with examples

Nature of Overtime Charged to

2. Due to general pressure of work GENERAL OVERHEAD

3. Due to delayed schedule DEPARTMENT

18. Describe the term ‘Labour Turnover’. How is it measured?

Labour turnover is defined as the rate of change in the

No. of workers replaced during a period

Megaton Co. has following information:

Calculate labour turnover

a. Avoidable Causes: This includes

i) low wages and allowances

i) Personal dislike for job or environment

20. What are the effects of labour turnover?