## Question 1

Consider the following information concerning the monthly remuneration of three workers:

• Standard production per month per worker 1,000 units
• Actual production during the month: A, 850 units; B, 750 units; and C, 950 units.
• Piece work rate is \$0.10 per unit (actual production)
• Additional production bonus is \$10 for each percentage of actual production that exceeds 80% over standard
• Dearness pay fixed at \$50 per month

Required: Calculate the total monthly remuneration for three workers: A, B ,and C.

### Solution

Total Monthly Remuneration for Workers

## Question 2

Production sections of a factory working on a job order system pay their workers under the Rown Premium Bonus Scheme. Workers are also entitled to a dearness allowance of \$25 per week of 48 hours.

A worker’s basic wage is \$4 per day (8 hours), and the timesheet for a week is summarized below.

 Job No. Time Allowed Time Taken 1 25 hours 20 hours 2 30 hours 20 hours

Idle time (waiting) 8 hours.

Required: Calculate the gross wages that a worker earns for the week.

### Solution

 Job No. 1 Job No. 2 Time Allowed 25 hrs. 30 hrs. Time Taken 20 hrs. 20 hrs. Time Saved 05 hrs. 10 hrs.

Bonus Hours (Rowan Plan)

Gross Earnings

 Job No. 1 \$22.00 Job No. 2 \$23.33 Idle time wages (8 x .50) \$4.00 Dearness allowance for idle time (8 x 0.50) \$4.00 Total wages \$53.33

Calculation

## Question 3

An operator engaged in machining components receives an ordinary day rate of \$160 per day for an 8-hour day.

The standard output for machining the components has been fixed at \$0.80 per hour (time fixed for premium bonus). On a certain day, the worker’s output on the machine is 800.

Required: Find the labor cost per 100 pieces and the wages earned under the following conditions:

1. If a bonus of \$19 is paid per 100 extra output
2. If paid for on straight piece work basis at the standard rate
3. If Halsey Premium Bonus System is in use

### Solution

1. Bonus of \$19 is paid per 100 extra output

 Standard output per hour = 80 pieces Standard output per day or for 8 hours = 80 x 8 = 640 pieces Actual output in 8 hours or in a day = 800 pieces Extra output = 800 – 640 = 160 pieces

Bonus

 For 100 extra output, bonus is = \$19.00 For 1 extra output, bonus is = \$19.100 For 160 extra output, bonus is = (19 / 100) x 160 = \$30.40 Regular wages for 8 hours = \$160.00 + Bonus = \$30.40 Total wages = \$190.40

Per 100 Piece Wages

 For 800 pieces wages = \$190.40 For 1 piece wages = \$190.40/800 For 100 pieces wages = (190.40 / 800) x 100 = \$23.80

2. Straight Piece of Rate

 Per piece wages = 160 / 640 = \$0.25 For 800 pieces wages = 800 x 0.25 = \$200 Per 100 pieces wages = (200 / 800) x 100 = \$25

3. Halsey Premium Bonus System

Standard time for 640 pieces = 8 hrs.
Standard time for 1 piece = 8 / 640 hrs.
Standard time for 800 pieces = (8 x 800) / 640 = 10 hrs.
Time taken = 8 hrs.
Time saved or bonus hours = 10 – 8 = 2 hrs.

Formula for Halsey Premium Scheme

50% of time saved = 2 x (50 / 100) = 1 hour
Regular wages = \$160.00
Bonus = (1 x 160) / 8 = \$20.00
Total earnings = 160 + 20 = \$180.00
Per 100 piece earnings = (180 / 800) x 100 = \$22.50

## Question 4

The time and motion study department of Moonlight Corporation has informed you that standard production on a specific item is 40 units per hour. During the last week of December, a worker’s record shows the following for each 8-hour day:

 Monday 280 units Tuesday 300 units Wednesday 320 units Thursday Factory closed Friday 360 units Saturday 400 units

Required: Prepare a schedule showing the worker’s daily earnings, the effective hourly rate, and the labor cost per unit under the following conditions:

1. Company uses the Halsey Premium Plan with a guaranteed rate of \$1.00 per hour and a premium of 50% of the time saved on production in excess of standard.
2. Company uses Tailor’s Differential Piece Rate System with rates as follows: for standard production and above, 4 cents per unit; and below standard production, 3 cents per unit.
3. Company uses 100% Bonus Plan and the base wage is \$1.50 per hour.

1.

2.

3.

## Frequently Asked Questions

### What is the most common problem in labour costing?

Lost or misplaced records are the most common problem in labor costing. Many business owners and managers often fail to keep accurate and complete records that may result in inaccurate information for processing payrolls which could lead to severe consequences such as penalties or lawsuits.

### What is labour costing?

Labour costing is a method of charging the manufacturing cost to the jobs manufactured.

### What is the formula for labour costing?

Total labor cost for a period divided by units produced during the same time period. Labor rate x units produced = labor cost

### What are the types of labour costs?

The four types of labour costs are variable labour, fixed labour, direct labour, and indirect labour.

### What are the advantages of labour costing?

Labour costing is more accurate than job order costing because it charges costs directly to the jobs manufactured.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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