cost assignment topic

8/7/2019 Cost Assignment TOPIC

http://slidepdf.com/reader/full/cost-assignment-topic 1/16



ACKNOWLEDGEMENT

First and the foremost I offer my gratitude to Holy Lord for enabling me to complete this

fascinating but hard working project. This project not only enlarges my vision but alsoshow me the real picture of the ethical issues.

I want to thank my teacher and colleagues who helped me a lot in preparing this task

Last but not the least, I express my heartiest regards to my parents who supported me

morally, spiritually and prayed for my success to achieve all goals in my life.



of unit produced should also result in a lower cost per unit for factory overhead and labor

cost combined.

Companies are striving to increase productivity of employees at every level. Just-in-time

and other productivity enhancement program urge employees to perform well and to

exercise initiative. Incentive wage plan can enhance the establishment of a working

environment in which everyone must perform. However, there is an art to establishing

appropriate wage levels and meaningful incentive plans. The danger over the long term is

that base pay incentive will lose their identity as employees begin to consider the

incentive as part of base. Therefore, standards should be clearly set and communicated to

the workers, if the plan is to have its desired effect.

Types of Wage Incentive Plan:

In actual practice, time wages and output wages are not clear cut and distinct. Incentive

plans typically involve wage rates based on various combinations of output and time.

Many wage incentive systems retain the names of industrial engineers and efficiency

experts who originate the plans

The piece rate plan

Halsey premium plan

Rowan premium plan

Barth premium plan

Bedeaux point plan

Scalon plan

Time rate plan

Incentive Wage Plan Based on Piece Rates:

Piece rate systems offer wages to the workers according to number of unit produced or

operations performed. Predetermined piece rate is multiplied by the number of pieces

produced to arrive at the earned wages.



Earned wages: Piece rate X Pieces produced

Different variations of piece rate systems are as follows:

Straight Piece Rate:

Under straight piece rates, workers are paid at standard rates for the pieces produced. The

standard piece rate is determined by time and motion studies. The same standard piece

rate applies to all workers without any regard that some of the workers are more efficient

than the others. There are no guaranteed minimum wages for the workers.

Piece Rate With Guaranteed Time Rate:

Under this system time rate earnings are assured to workers, but those workers who

produce above standard output are paid on piece rate basis. The reason for guaranteed

time rate is that, the workers should be protected against low productivity and low wages

caused by factors beyond their control. Such factors include power failure, machine

breakdown, faulty material, shortage of material etc. Moreover, straight piece rates are

not favorably viewed by workers, and labor unions, exert pressure for a guaranteed

minimum wage. Therefore, piece rate are coupled with guaranteed time rates.

Plus Points:

Encourages efficient workers to produce more

Workers adopt better ways of getting things done, to earn more

Idle time is reduced to the minimum

Workers take every precaution to avoid machine breakdowns.

Cost of supervision is less

Minus Points:

Delays beyond one's control could affect workers earnings adversely

Beginners and slow learners are left behind in the race

The focus on quantity would affect quality



Workers may stretch themselves to unhealthy levels to earn more

Encourages rivalry between workers

Differential Piece Rates:

Differential piece rates systems offer higher piece rates to workers attaining desired level

of productivity. The purpose is to provide stronger incentive to workers to increase the

output. For example, piece rate of Rs. 0.25 is paid to workers producing less then the

standard output and Rs. 0.30 per piece is paid to workers producing standard output or

more.

Taylor’s Differential System

Marrick’s Multiple Piece Rate System

Taylor’s Differential System

This system was introduced by Taylor, the father of scientific management. A worker is

paid more if he finishes the assigned task before the stipulated time.Taylor was of the view

that an inefficient worker had no place in an organization and he should be penalised by

paying low piece rate for low production. To encourage the worker to complete the work

in standard time , he is given a lower piece rate. Thus if standard production has been

fixed at 8 units/day of 8 hours , the higher piece rate for 8 units or beyond may be Re 1/=

per unit and lower rate for an output if less than 8 units per day, may be 80 paise Per

unit.Hence Taylor decided to give a large reward to those who would complete the work

within or less than the standard time. The system is very harsh to inefficient workers on

account of low rate and low output.

Marrick’s Multiple Piece Rate System:

This method uses three rates; up to 83%of the standard output workers are paid at the

ordinary piece rate; between 83% to 100% at 110% of the ordinary piece rate and above

100% at 120% of the ordinary piece rate.



Earning of efficient workers under defferential piece rates shall be higher than the

aernings under straight piece rate. Main advantage to employer is the reduction in per

unit fixed factory overhead costs caused by greater volume of output.

Incentive Wage System Based on Time Rate:

Time based incentive wage systems pay to the worker according to the time rates for hours

worked. In addition to regular time rate earnings, premium are paid to workers exceeding

the standard effieinecy level. Efficiency of workers is measured in hours produced and not

in pieces produced. In simple words A worker is paid on the basis of time spent on the

work, irrespective of the amount of work done.

Plus Points:

Simple and easy to operate

Guaranteed wages to workers

Favoured by trade unions

Good for precision jobs

Minus Points;

Makes no distinction between efficient and inefficient workers

Offers very little to efficient workers

Requires close supervision so that workers do not waste their time

No relationship exists between wages and productivity

Halsey Plan:

Here the worker gets a guaranteed wages based on the time, irrespective of whether the

assigned work is completed or not. If the worker is able to finish the task in less than the

standard time, he or she is entitled to get fifty (in some cases one third) per cent of time

saved at time rate in addition to normal time wages.

Halsey Premium plan 50% of the time saved as premium



Halsey Weir Premium plan offers 30% of the time saved as premium

Example:

Rate per hour = Rs 15/hour

Time allowed for job = 20 hoursTime taken = 15 hours

Calculate the total earnings of the worker under the Halsey plan

S (standard time) = 20 hours

T(time taken) = 15 hoursR(rate) = Rs 15 per hour.

Total earnings = TXR+50%(S-T)XR

= 15X15+50/100(20-15)X15

= 225+2.5X15

Total wages for 15 hrs = 262.5

Find the effective rate of earnings = 262.5/15= Rs17.5

Rowan Premium Plan:

It assures minimum time wages. Bonus is paid on the basis of time saved.But unlike a

fixed percentage , it is calculated thus

Bonus = Time saved/Hours alloed X Hours worked X Time rate

Gantt task and bonus plan:

Here time wages are guaranteed. Standard time for each task is fixed. Workers, who fail

to finish the job within the time limits, get time wages. A worker who reaches the standard

is paid time wage plus bonus at a fixed percentage (20 per cent)of normal time wages. If

a worker exceeds the standards, he is paid a high piece rate.



Bedeaux plan:

In this plan every operation is expressed in terms of standard minutes called as “B's”

representing one minute. A worker gets time wages for 100 % performance; ie, finishing

the job exactly as per standards set. If actual performance exceeds the standard

performance in terms of B's then 75% of the wages of time saved is paid to worker as

bonus and 25% is given to the foreman.

Emerson's efficiency plan:

If the worker achieves 67% efficiency, he gets bonus at a given rate. The rate of bonus

increases gradually from 67% to 100%. Above 100% bonus will be at 20% of the basic

rate plus 1% for each increase in efficiency.

One Hundred Percent Bonus Plan:

It is a variation of the straight piecework plan. It differs in that standards are stated not in

terms of money, but in time per unit of output. Instead of price per piece, a standard time

is allowed to complete a unit, and the worker is paid for the standard time at the hourly

rate if the unit is completed in the standard time or less.

Example:

If a worker produces 100 units in an 8 hour shift and the standard time is 80 per units per

shift (or 10 units per hour), the worker is paid the hourly rate for 10 hours. In other



variations of the 100% bonus plans, savings are shared with the supervisor and or the

company.

Each payroll period, an efficiency ratio must be figured for every worker before earnings

can be computed. Production standards in units of output per hour are set by industrial

engineers. Hour of works and units produced are reported to the payroll department,

where the reported hours worked are multiplied by the hourly production standard to

determine the standard units.

Group Bonus Plan:

Iondustry uses a great variety of incentive wage plan ,some of which depend on the

superior productive performance of a whole department or an entire factory and can

include support or indirect labor as well as direct labor. Fectory operations using large

machines often require employee to work in groups or crew. Although the worker of each

employee is essential to machine operations, it is frequently impossible to separate the

work of one member of a crew. A worker on the assembly line cannot increase output

without the operation of entire group

Group bonus plan, like plans designed for individual incentive, are intended to encourage

production at rates above a standard. Each worker in the group receives an hourly rate for

production up to the standard output. Unit produce in axcess of the standard are regarded

as time saved by the groups, and each worker is in effect paid a bonus for time saved.

Usally the bonus earned by the group is divided among the group members in proportion

to their base pay rate.

Example:

A crew of 10 workers uses costly equipment and each is paid Rs. 10 per hour for a regular

8 hour shift. Standard production is 50 units per hour or 400 units per shift and overhead is

Rs. 320 per 8 hour shift or Rs. 40 per hour. In this, the bonus is computer for each day. In



other group or individual incentive plans, the bonus can be computer for each week,

month of quarter.

Organizational Incentive Plan:

Management should evaluate the strengths and weaknesses of both individual and group

incentive plans to determine what is best for their organizations. In situation where

productivity of whole organization needs improvement, an organizational and gainsharing

plan may be the best answer.

GainSharing Plan:

It is based on a mathematical formula that compares a baseline of performance with actual

productivity during a given period. When productivity exceeds the base line an agreed

upon savings is shared with employees. Unlike profit sharing plans which have deferred

payments, gain sharing plans are current distribution plans. These are based on individual

performance and are distributed on a monthly or quarterly basis.

Scanlon:

The Scanlon plan was developed by Joseph N. Scanlon, a Lecturer at the Massachusetts

Institute of Technology in USA in 1937. The plan is essentially a suggestion scheme de-

signed to involve the workers in making suggestions for reducing the cost of operation and

improving working methods and sharing in the gains of increased productivity.



The plan is characterized by two basic features. First, both employees and managers can

participate in the plan by submitting their suggestions for cost-cutting methods. Second,

increase in efficiency on account of cost-cutting is shared by the employees of the unit.

The Scanlon plan, wherever adopted, has been successful to encourage a sense of

partnership among employees, improved employee-employer management relations, and

increased motivation to work.

Profit Sharing Plan:

Here the organisation agrees to pay a particular portion of net profits (given in cash or in

the form of shares) to eligible employees.

Advantages:

Empower the employee to participate in the growth of a company as part owner

and get a fair share of the cake.

Helps the company to retain talented employees and make them committed to the

job and the company

Better industrial relations, reduced employee turnover, lesser supervision, are other

benefits.

Incentive Plan for White Collar Workers / Salesman:

The salesman usually given an incentive in the form of sales commissions. One study

reported that almost 75% organizations paid salesman on some type of incentive basis.

This is due to three factors.

The unsupervised nature of most sales work.

Tradition in the market.

The assumptions the incentives are needed to motivate sales man.

There are several incentive plans, each appropriate for different markets, products, etc,.

but all plans are basically variation of three types of plans



Straight salary method

Straight commision basis

Combination method of salary and commision basis

Salary plus commission

Incentive for Management Employees:

In many organizations the managers are paid bonus. There are two types of bonus plan.

Determined by formula (some criteria like increased sales)

Determined by some discretion used in allocation of bonus (paid on more or less

permanent basis)

The bonus plan is generally reviewed annually to make them more effective. For top level

management, bonuses are generally tied to overall corporate result. The size of bonus is

much higher for top level executives.

For Effective Implementation of Incentive Plan:

Link the incentive with company’s strategy

Ensure that efforts and reward are directly related

Make the plan understandable and calculableby the employees

Set effective standards

guarantee an hourly base rate

get support for the plan

develop good measurement systems

Emphasize long term as well as short term goals

Take the corporate culture into consideration

cost assignment topic

Documents