“PATSHALA – Experience The Joy of Learning” “COSTING”

Question 1
A, B and C are three industrial workers working in Sports industry and are experts in making
cricket pads. A, B and C are working in Mahi Sports, Virat Sports and Sikhar Sports companies
respectively. Workers are paid under different incentive schemes. Company wise incentive
schemes are as follows:
Company Incentive scheme
Mahi Sports Emerson’s efficiency system
Virat Sports Merrick differential piece rate system
Sikhar Sports Taylor’s differential piece work system
The relevant information for the industry is as under:
Standard working hours 8 hours a day Standard output per hour
(in units) 2
Daily wages rate Rs. 360

No. of working days in a week 6 days

A B C
132 units 108 units 96 units

You are required to calculate effective wages rate and weekly earnings of all the three workers.
(MTP March ‘19, 10 Marks)
Solution:
Calculation of effective wages rate and weekly earnings of the workers A, B and C
Workers A B C
Standard Output 96 units 96 units 96 units

(8 hrs. × 2 units × 6 days) (8 hrs. × 2 units × (8 hrs. × 2

units × 6 days)
6 days)
Actual Output 132 units 108 units 96 units
96 𝑈𝑛𝑖𝑡𝑠
132 𝑈𝑛𝑖𝑡𝑠 108 𝑈𝑛𝑡𝑖𝑠 ×100=
100
Efficiency (%) 96 𝑈𝑛𝑖𝑡𝑠
96 𝑈𝑛𝑖𝑡𝑠 96 𝑈𝑛𝑖𝑡𝑠
×100= 137.5 ×100= 112.5
Daily Rate wages Rs. 360 Rs. 360 Rs. 360

Incentive system Emerson’s Efficiency Merrick differential Taylor’s

piece rate system
System differential
piece work
system
Rate Bonus o 57.5% of time rate 20% of ordinary 25% of
piece rate ordinary
f (20% + 37.5% ) piece rate
www.patshala.co.in 99 66 05 06 07 1
 “CA/CMA Inter” “Labour”

Effective Wage Rs. hour 70.875 per Rs. 27 per piece Rs. 28.125
Rate per piece
𝑅𝑠. 360 𝑅𝑠. 360 𝑅𝑠. 360
( 157.5%) ( 120%) (
8 𝐻𝑜𝑢𝑟𝑠 16 𝑈𝑛𝑖𝑡𝑠 125%
)
16 𝑈𝑛𝑖𝑡𝑠
Total weekly Rs. 3,402 Rs. 2,916 Rs. 2,700
earnings
(8 hours × 6 days × (108 units × Rs. 27) (96 units × Rs.
Rs.70.875) 28.125)

Question 2
Anirban Ltd. wants to ascertain the profit lost during the year 20X8-X9 due to increased Labour
turnover. For this purpose, they have given you the following information
1. Training period of the new recruits is 50,000 hours. During this period their
productivity is 60% of the experienced workers. Time required by an experienced worker
is 10 hours per unit.
2. 20% of the output during training period was defective. Cost of rectification of a
defective unit was Rs. 25.
3. Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
4. Selling price per unit is Rs.180 and P/V ratio is 20%.
5. Settlement cost of the workers leaving the organization was Rs.1,83,480.
6. Recruitment cost was Rs.1,56,340
7. Training cost was Rs.1,13,180.
You are required to CALCULATE the profit lost by the company due to increased Labour
turnover during the year 20X8-X9.
(MTP 5 Marks, April ’19 & Sep ‘23, RTP May ’18)

Solution:
Output by experienced workers in 50,000 hours = 50,000/10= 5,000 units
Output by new recruits = 60% of 5,000 = 3,000 units
Less of output = 5,000 – 3,000 = 2,000 units
Total loss of output = 10,000 + 2,000 = 12,000 units
Contribution per unit = 20% of 180 = Rs. 36
Total contribution cost = 36 × 12,000 = Rs. 4,32,000
Cost of repairing defective units = 3,000 × 0.2 × 25 = Rs. 15,000
Profit forgone due to Labour turnover
(Rs.)
Loss of Contribution 4,32,000
Cost of repairing defective units 15,000
Recruitment cost 1,56,340

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 2

“PATSHALA – Experience The Joy of Learning” “COSTING”

Training cost 1,13,180

1,83,480
Settlement cost of workers leaving
9,00,000
Profit forgone in 20X8-X9

Question 3
In a factory, the basic wage rate is Rs. 300 per hour and overtime rates are as follows:
Before and after normal working hours 180% of basic wage rate
Sundays and holidays 230% of basic wage rate
During the previous year, the following hours were worked
- Normal time 1,00,000 hours
- Overtime before and after working hours 20,000 hours
Overtime on Sundays and holidays 5,000 hours
Total 1,25,000 hours
The following hours have been worked on job ‘A’
Normal 1,000 hours

Overtime before and after working hrs. 100 hours.

Sundays and holidays 25 hours.

Total 1,125 hours

You are required to CALCULATE the labour cost chargeable to job ‘A’ and overhead in each of
the following instances:
1. Where overtime is worked regularly throughout the year as a policy due to the workers ‘shortage.
2. Where overtime is worked irregularly to meet the requirements of production.
3. Where overtime is worked at the request of the customer to expedite the job.
(MTP 10Marks, Oct.’20) (Same concept different figures RTP Nov’21, Old & New SM)

Solution:
Workings Basic wage rate:300 per hour Overtime wage rate before and after working hours : 300 ×
180% = 540 per hour Overtime wage rate for Sundays and holidays: Rs. 300 × 230% = 690 per hour
Computation of average inflated wage rate (including overtime premium):
Particulars Amount (Rs.)
Annual wages for the previous year for normal time (1,00,000 hrs. × Rs. 300) 3,00,00,000
Wages for overtime before and after working hours (20,000 hrs. × Rs. 540) 1,08,00,000
Wages for overtime on Sundays and holidays (5,000 hrs. × Rs. 690) 34,50,000
Total wages for 1,25,000 hrs. 4,42,50,000
Average inflated wage rate = 4425000 =354
1,25,00 hours
(i) Where overtime is worked regularly as a policy due to workers’ shortage:
The overtime premium is treated as a part of employee cost and job is charged at an inflated wag
rate. Hence, employee cost chargeable to job ‘A = Total hours × Inflated wage rate = 1,125 hrs. ×
Rs. 354 = Rs. 3,98,250
(ii) Where overtime is worked irregularly to meet the requirements of production:

www.patshala.co.in 99 66 05 06 07 3
 “CA/CMA Inter” “Labour”

Basic wage rate is charged to the job and overtime premium is charged to factory overheads as
under:
Employee cost chargeable to Job ‘A’: 1,125 hours @ Rs.300 per hour = Rs.3,37,500 Factory
overhead:
{100 hrs. × Rs. (540 – 300)} + {25 hrs. × Rs. (690 – 300)} = {Rs. 24,000 + Rs. 9,750} = Rs. 33,750
(iii) Where overtime is worked at the request of the customer, overtime premium is also
charged to the job as under:
Job‘A’Employeecost 1,125 hrs. @ Rs. 300 = 3,37,500

Overtime premium 100 hrs. @ Rs. (540 – 300) = 24,000

25 hrs. @ Rs. (690 – 300) = 9,750
Total 3,71,250

Question 4
The standard time allowed for a certain piece of work is 240 hours. Normal wage rate is ₹ 75 per
hour. The bonus system applicable to the work is as follows:
Percentage of time saved to time allowed (slab Bonus
rate)
(i) Up to the first 20% of time allowed 25% of the corresponding saving in time.
(ii) For and within the next 30% of time allowed 40% of the corresponding saving in time.
(iii) For and within the next 30% of time allowed 30% of the corresponding saving in time.
(iv) For and within the next 20% of time allowed 10% of the corresponding saving in time.
CALCULATE the total earnings of a worker over the piece of work and his earnings per hour
when he takes-
a) 256 hours,
b) 120 hours, and
c) 24 hours respectively. (MTP 10 Marks March ‘22)

Solution:
Calculation of total earnings and earnings per hour:
Particulars (a) Time taken is 256 (b) Time taken is (c) Time taken is
hours 120 hours 24 hours
A. Time Allowed 240 hours 240 hours 240 hours
B. Time taken 256 hours 120 hours 24 hours
C. Time Saved (A-B) Nil 120 hours 216 hours
D. Bonus hours (Refer Nil 40.80 hours 64.80 hours
workings)
E. Hours to be paid (B+D) 256 hours 160.80 hours 88.80 hours
F. Wages rate per hour ₹ 75 ₹ 75 ₹ 75
G. Total earnings (E×F) ₹ 19,200 ₹ 12,060 ₹ 6,660
H. Earnings per hour (G÷B) ₹ 75 ₹ 100.50 ₹ 277.50
Working Notes:
Calculation of bonus hours:

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 4

“PATSHALA – Experience The Joy of Learning” “COSTING”

Time saved 120 Time saved 216

hours hours
For first 20% of time allowed i.e. 48 hours 12 12
(25% of 48 hours) (25% of 48 hours)
For next 30% of time allowed i..e. 72 hours 28.80 28.80
(40% of 72 hours) (40% of 72 hours)
For next 30% of time allowed i..e. 72 hours - 21.60
779794646
(30% of 72 hours)
For next 20% of time allowed i..e. 48 hours - 2.40
(10% of 24 hours)
Bonus hours 40.80 64.80

Question 5
Archlike Tyre Manufacturing Private Limited has four workers Ram, Shyam, Mohan & Kundan
who are paid wages on the basis of ₹ 100 per day, ₹ 120 per day, ₹ 130 per day & ₹ 2500 per month
respectively. Standard working days in a week are six of 8 hours per day. For the month of October
2022, there was only one holiday other than Sunday for which no payment was made to employees
except Kundan who was paid for full month. Sundays are considered paid holidays i.e. employees
are paid for Sunday also even there is no working on that day. Provident fund contribution is 8% of
monthly wages by employer and employee each. ESI contribution is 5% of monthly wages by
employer and 4% of monthly wages by employee. On the basis of above information, you are
required to CALCULATE (regarding the month of October 2022):
(i) Amount of net wages receivable by each employee from the employer.
(ii) What is the total amount of Provident Fund required to be deposited by employer?
(iii)What is the total amount of ESI required to be deposited by employer?
(iv) What is the total labour cost to employer?
(v) If total material cost is ₹ 20,000 for October 2022 and overheads are charged equal to labour cost,
calculate total cost for the month. (MTP 10 Marks Sep’22)

Solution:
(i) Calculation of net wages receivable by each employee from the employer (October 2022):
Ram (₹) Shyam Mohan Kund Total
(₹) (₹) an (₹)
(₹)
Wages for October 2022 3,000 3,600 3,900 2,500 13,000
(₹ 100 x (₹ 120 x (₹ 130 x
30 days) 30 days) 30 days)

Less: Employee Contribution to

PF @ 8%
240 288 312 200 1,040
Less: Employee
Contribution to ESI @ 4%
120 144 156 100 520
Net Wages Receivable 2,640 3,168 3,432 2,200 11,440
(ii) Calculation of total amount of Provident Fund required to be deposited by employer (October
2022):

www.patshala.co.in 99 66 05 06 07 5
 “CA/CMA Inter” “Labour”

(₹)
Total Wages for the month 13,000
1,040
Employer’s Contribution to Provident Fund @8% of ₹ 13,000
1,040
Add: Employee’s Contribution to Provident Fund @8% of ₹ 13,000
Total amount of Provident Fund required to be deposited by 2,080
employer
(iii)Calculation of total amount of ESI required to be deposited by employer (October 2022):
(₹)
Total Wages for the month 13,000
Employer’s Contribution to ESI @5% of ₹ 13,000 650
Add: Employee’s Contribution to ESI @4% of ₹ 13,000 520
Total amount of ESI required to be deposited by employer 1,170
(iv) Total labour cost to employer (October 2022):
(₹)
Total Wages for the month 13,000
Add: Employer’s Contribution to Provident Fund @8% of ₹ 13,000 1,040
650
Add: Employer’s Contribution to ESI @5% of ₹ 13,000
Total labour cost to employer 14,690
(v) Calculation of Total Cost for October 2022
(₹)
Total Material Cost 20,000
Total Labour Cost 14,690
14,690
Total Overheads (Equal to Labour Cost)
Total Cost 49,380

Question 6
ADV Pvt. Ltd. manufactures a product which requires skill and precision in work to get quality
products. The company has been experiencing high Labour cost due to slow speed of work. The
management of the company wants to reduce the Labour cost but without compromising with the
quality of work. It wants to introduce a bonus scheme but is indifferent between the Halsey and
Rowan scheme of bonus. For the month of November 2019, the company budgeted for 24,960 hours
of work. The workers are paid ‘80 per hour.
Required:
CALCULATE and suggest the bonus scheme where the time taken (in %) to time allowed to
complete the works is (a) 100% (b) 75% (c) 50% & (d) 25% of budgeted hours. (RTP Nov’19)

Solution:
The Cost of labour under the bonus schemes are tabulated as below:
Time Time taken Wages (₹) Bonus (₹) Total Wages (₹) Earning per hour (₹)
Allowe Halsey* Rowan** Halsey Rowan Halsey Rowan

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 6

“PATSHALA – Experience The Joy of Learning” “COSTING”

d
(1) (2) (3)= (2) ×₹ 80 (4) (5) (6)= (3) + (7)= (3) + (8)= (9)
(4) (5) (6)/(2) = (7)/(2)

24,960 24,960 19,96,800 - - 19,96,800 19,96,800 80.00 80.00

24,960 18,720 14,97,600 2,49,600 3,74,400 17,47,200 18,72,000 93.33 100.00

24,960 12,480 9,98,400 4,99,200 4,99,200 14,97,600 14,97,600 120.00 120.00

24,960 6,240 4,99,200 7,48,800 3,74,400 12,48,000 8,73,600 200.00 140.00

* Bonus under Halsey Plan = 50% of (Time Allowed – Time Taken) × Rate per hour
** Bonus under Rowan Plan = Time Taken Time Saved X Rate per hour
Time allowed
Rowan scheme of bonus keeps checks on speed of work as the rate of incentive increases only up to 50% of
time taken to time allowed but the rate decreases as the time taken to time allowed comes below
50%. It provides incentives for efficient workers for saving in time but also puts check on careless
speed. On implementation of Rowan scheme, the management of ADV Pvt. Ltd. would resolve issue of the
slow speed work while maintaining the skill and precision required maintaining the quality of
product.

Question 7
GZ Ld. pays the following to a skilled worker engaged in production works. The following are the
employee benefits paid to the employee:
(a) Basic salary per day ₹1,000
(b) Dearness allowance (DA) 20% of basic salary
(c) House rent allowance 16% of basic salary
(d) Transport allowance ₹50 per day of actual work
(e) Overtime Twice the hourly rate (considers basic and DA),
only if works more than 9 hours a day otherwise
no overtime allowance. If works for more than 9
hours
a day then overtime is considered after 8th hours.
(f) Work of holiday and Sunday Double of per day basic rate provided works at least
4 hours. The holiday and Sunday basic is eligible
for all allowances and statutory deductions.
(h) Earned leave & Casual leave These are paid leave.

(h) Employer’s contribution to 12% of basic and DA

Provident fund
(i) Employer’s contribution to 7% of basic and DA
Pension fund

www.patshala.co.in 99 66 05 06 07 7
“CA/CMA Inter” “Labour”

The company normally works 8-hour a day and 26-day in a month. The company provides 30
minutes lunch break in between. During the month of August 2020, Mr.Z works for 23 days
including 15 th August and a Sunday and applied for 3 days of casual leave. On 15th August and
Sunday he worked for 5 and 6 hours respectively without lunch break. On 5th and 13th August he
worked for 10 and 9 hours respectively. During the month Mr. Z worked for 100 hours on Job
no.HT200. You are required to CALCULATE:
(i) Earnings per day
(ii) Effective wages rate per hour of Mr. Z.
(iii) Wages to be charged to Job no.HT200. (RTP Nov ’20)

Solution:
Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of days= (8 hours –
0.5 hours) × 26 days = 195 hours
2. Hours worked by Mr.Z = No. of normal days worked + Overtime + holiday/ Sunday worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.
(i) Calculation of earnings per day
Particulars Amount (₹)
Basic salary (₹1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200
31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × ₹31,200) 3,744
Employer’s contribution to Pension fund (7% × ₹31,200) 2,184

41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638

(ii) Calculation of effective wage rate per hour of Mr. Z:

Particulars Amount (₹)
Basic salary (₹1,000 × 26 days) 26,000

Additional basic salary for Sunday & holiday (₹1,000 × 2 days) 2,000
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (₹50 × 23 days) 1,150

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 8

“PATSHALA – Experience The Joy of Learning” “COSTING”

Overtime allowance (₹160 × 2 × 2 hours)* 640

Employer’s contribution to Provident fund (12% × ₹33,600) 4,032

Employer’s contribution to Pension fund (7% × ₹33,600) 2,352

Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) ÷ 7.5 hours = (1,000+200) ÷ 7.5 = ₹160 per hour
(iii) Calculation of wages to be charged to Job no. HT200 = ₹ 248 × 100 hours = ₹ 24,800

Question 8
JBL Sisters operates a boutique which works for various fashion houses and retail stores. It has
employed 26 workers and pays them on time rate basis. On an average an employee is allowed 8
hours for boutique work on a piece of garment. In the month of December 2020, two workers M and
J were given 15 pieces and 21 pieces of garments respectively for boutique work. The following are
the details of their work:
M J
Work assigned 15 pcs. 21 pcs.
Time taken 100 hours 140 hours
Workers are paid bonus as per Halsey System. The existing rate of wages is ₹ 60 per hour. As per
the new wages agreement the workers will be paid ₹ 72 per hour w.e.f. 1stJanuary 2021. At the end
of the month December 2020, the accountant of the company has wrongly calculated wages to these
two workers taking ₹ 72 per hour.
Required:
(i) CALCULATE the loss incurred due to incorrect rate selection.
(ii) CALCULATE the loss incurred due to incorrect rate selection, had Rowan scheme of
bonus payment followed.
(iii) CALCULATE the loss/ savings if Rowan scheme of bonus payment had followed.
(iv) DISCUSS the suitability of Rowan scheme of bonus payment for JBL Sisters? (RTP May ’21)

Solution:
Workings Notes:
Calculation of Total hours saved:
M J

No. of garments assigned (Pieces.) 15 21

Hour allowed per piece (Hours) 8 8
Total hours allowed (Hours) 120 168
Hours Taken (Hours) 100 140
Hours Saved (Hours) 20 28

www.patshala.co.in 99 66 05 06 07 9
“CA/CMA Inter” “Labour”

(i) Calculation of loss incurred due to incorrect rate selection:

(While calculating loss only excess rate per hour has been taken)
M(₹) J(₹) Total
(₹)

Basic Wages 1,200 1,680 2,880

(100 Hrs. × ₹12) (140 Hrs. × ₹12)
Bonus (as per Halsey Scheme) 120 168 288
(50% of Time Saved × Excess Rate) (50% of 20 Hrs. × ₹12) (50% of 28 Hrs. ×
₹12)
Excess Wages Paid 1,320 1,848 3,168
M J Total
(₹) (₹) (₹)
Basic Wages 1,200 1,680 2,880
(100 Hrs. × ₹12) (140 Hrs. × ₹12)
Bonus (as per Halsey Scheme) 120 168 288
(50% of Time Saved × Excess Rate) (50% of 20 Hrs. × ₹12) (50% of 28 Hrs. ×
₹12)
Excess Wages Paid 1,320 1,848 3,168
(ii) Calculation of loss incurred due to incorrect rate selection had Rowan scheme of
bonus payment followed:
M(₹) J(₹) Total (₹)

Basic Wages 1,200 1,680 2,880

(100 Hrs. × ₹12) (140 Hrs. × ₹12)
Bonus (as per Rowan Scheme) 200 280 480
𝑇𝑖𝑚𝑒 𝑇𝑎𝑘𝑒𝑛
( × 𝑇𝑖𝑚𝑒 𝑆𝑎𝑣𝑒𝑑
𝑇𝑖𝑚𝑒 𝐴𝑙𝑙𝑜𝑤𝑒𝑑
× 𝐸𝑥𝑐𝑒𝑠𝑠 𝑅𝑎𝑡𝑒)
100
( × 20 × 𝑅𝑠. 12)
120 140
( × 28 × 𝑅𝑠. 12)
168
Excess Wages Paid 1,400 1,960 3,360
(iii)Calculation of amount that could have been saved if Rowan Scheme were followed
M(₹) J(₹) Total (₹)

Wages paid under Halsey Scheme 1,320 1,848 3,168

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 10

“PATSHALA – Experience The Joy of Learning” “COSTING”

Wages paid under Rowan Scheme 1,400 1,960 3,360

Difference (loss) (80) (112) (192)

Question 9
A total of 108 Labour hours have been put in a particular job card for repair work engaging a
semi- skilled and skilled Labour (Mr. Deep and Mr. Sam respectively). The hours devoted by
both the workers individually on daily basis for this particular job are given below:
Monday Tuesday Wednesday Thursday Friday
10.5 8.0 10.5 9.5 10.5
The skilled Labour also worked on Saturday for 10 hours.
Sunday is a weekly holiday and each worker has to work for 8 hours on all week days and 5 hours
on Saturdays; the workers are however paid full wages for Saturday (8 hours for 5 hours
worked).
Semi-skilled and skilled worker is paid ordinary wage @ ₹ 400 and ₹ 600 respectively per day of 8 hours
Labour. Further, the workers are also paid dearness allowance @ 20%.
Extra hours worked over and above 8 hours are also paid at ordinary wage rate however, overtime
premium of 100% of ordinary wage rate is paid if a worker works for more than 9 hours in a day
AND 48 hours in a week. You are required to

Solution:
Calculation of total normal hours to be paid for Mr. Deep (Semi-skilled):
Day Normal hours Extra Overtime Equivalent Total normal
hours hours normal hours for hours
overtime worked
A B C D = C×2 E = A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 -- -- -- 8
Wednesday 8 1 1½ 3 12
Thursday 8 1 ½ 1 10
Friday 8 1 1½ 3 12
Saturday -- -- -- -- --
Total 40 4 5 10 54
Calculation of total normal hours to be paid for Mr. Sam (Skilled):
Day Normal Extra Overtime Equivalent normal Total normal
hours hours hours hours for overtime hours
worked
A B C D = C×2 E = A+B+D
Monday 8 1 1½ 3 12
Tuesday 8 --- --- - 8
-
-
Wednesday 8 1 1½ 3 12

www.patshala.co.in 99 66 05 06 07 11
 “CA/CMA Inter” “Labour”

Thursday 8 1 ½ 1 10
Friday 8 1 1½ 3 12
Saturday 5 3* + 1 1** 2 11
Total 45 8 6 12 65
*Mr. Sam will be paid for equivalent 8 normal working hours at ordinary wage rate, though 5
hours of working is required on Saturday. Further, extra 9th hour worked will also be paid at
ordinary wage rate.
** Overtime of 1 hour worked over and above 9 hours will be paid at overtime rate.
Wages payable:
Mr. Deep Mr. Sam
Basic Wages per hour (₹ 400/8, ₹ 600/8) (₹) 50 75
Dearness allowance per hour (@ 20%) (₹) 10 15
Hourly rate (₹) 60 90
Total equivalent normal hours 54 65
Total Wages payable (₹) 3,240 5,850

Question 10
Following data have been extracted from the books of M/s. ABC Private Limited:
(i) Salary (each employee, per month) ₹ 30,000
(ii) Bonus 25% of salary
(iii)Employer's contribution to PF, ESI etc. 15% of salary
(iv) Total cost at employees' welfare activities ₹ 6,61,500 per annum
(v) Total leave permitted during the year 30 days
(vi) No. of employees 175
(vii) Normal idle time 70 hours per annum
(viii) Abnormal idle time (due to failure of power supply) 50 hours
(ix) Working days per annum 310 days of 8 hours
You are required to calculate:
1. Annual cost of each employee
2. Employee cost per hour
3. Cost of abnormal idle time, per employee (PYP Nov ‘18, 5 Marks)

Solution:

1.
Annual cost of each employee ₹ ₹

1. Salary (30,000×12) 3,60,000

Bonus (25% of Salary) 90,000

Employees Contribution to PF (15% of Salary) 54,000
Employers welfare (661500/175) 3,780

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 12

“PATSHALA – Experience The Joy of Learning” “COSTING”

2. Effective Working hours (310 days × 8 hours)

Less: Leave days (30 days × 8 hours) 240 hours*
Available Working hours 2240 hours
Less: Normal Loss @ 70 hours2170
hours Employee Cost per hour 507780 = ₹ 234
2170
*It is assumed 310 working days are without taking leave permitted into consideration
Cost of abnormal idle time per employee = ₹ 234× 50 hours= ₹ 11700 Alternative solution
for Part (2) and (3)
(2) Calculation of Employee cost per hour:
Working hours per annum 2,480 *

Less: Normal Idle time hours 70

Effective hours 2,410
Employee cost 5,07,780
Employee cost per hour 210.70

*It is assumed 310 working days are after adjusting leave permitted during the year.
3. Cost of Abnormal idle time per employee:
Abnormal Idle time hours 50
Employee cost per hour 210.70
Cost of Abnormal idle time (210.70 ×50) 10,534.85

Question 11

Following are the particulars of two workers 'R' and 'S' for a month:
Particulars R S
(i) Basic Wages (₹) 15,000 30,000

(ii) Dearness Allowance 50% 50%

(iii) Contribution to EPF (on basic wages) 7% 7.5%
(iv) Contribution to ESI (on basic wages) 2% 2%
(v) Overtime (hours) 20 -
The normal working hours for the month are 200 hrs. Overtime is paid at double the total of
normal wages and dearness allowance. Employer's contribution to State Insurance and Provident
Fund are at equal rates with employees' contributions.
Both workers were employed on jobs A, B and C in the following proportions:
Jobs A B C
R 75% 10% 15%
S 40% 20% 40%
Overtime was done on job 'A'. You are required to :
(i) Calculate ordinary wage rate per hour of 'R' and ‘S’.
(ii) Allocate the worker's cost to each job 'A', 'B' and 'C'. (PYP 6 Marks Nov 20, Old & New SM)

www.patshala.co.in 99 66 05 06 07 13
 “CA/CMA Inter” “Labour”

Solution:
(i) Calculation of Net Wages paid to Worker ‘R’ and ‘S’
Particulars R (₹) S (₹)
Basic Wages 15,000.00 30,000.00
Dearness Allowance (DA) (50% of Basic Wages) 7,500.00 15,000.00
4,500.00 ----
Overtime Wages (Refer to Working Note 1)
27,000.00 45,000.00
Gross Wages earned
Less: Provident Fund (7% × ₹ 15,000); (7.5% × ₹ 30,000) (1,050.00) (2,250.00)
Less: ESI (2% × ₹ 15,000); (2% × ₹ 30,000) (300.00) (600.00)

Net Wages paid 25,650.00 42,150.00

Calculation of ordinary wage rate per hour of Worker ‘R’ and ‘S’
R (₹) S (₹)

Gross Wages (Basic Wages + DA) 22,500.00 45,000.00

(excluding overtime)
Employer’s contribution to P.F. and E.S.I. 1,350.00 2,850.00
23,850.00 47,850.00

Ordinary wages Labour Rate per hour 119.25 239.25

(₹ 23,850 ÷ 200 hours); (₹ 47,850 ÷ 200 hours)
(ii) Statement Showing Allocation of workers cost to each Job
Total Jobs
A B C
Wages
Worker R
Ordinary Wages (15:2:3) 23,850.00 17,887.50 2,385.00 3577.50
Overtime 4500.00 4500.00 - --
Worker S
Ordinary Wages (2:1:2) 47,850.00 19,140.00 9,570.00 19,140.00
76,200.00 41,527.50 11,955.00 22,717.50
Working Note:
Normal Wages are considered as basic wages
Over Time = 2X(Basic Wage +D.A)X 20 hours = 2X 22,500 X 20 Hours = ₹4,500
200 Hours 200

Question 12
Rowan Premium Bonus system does not motivate a highly efficient worker as a less efficient
worker and a highly efficient worker can obtain same bonus under this system. Discuss with an
example. (PYP 5 Marks July 21)
Solution:
Rowan Premium Plan: According to this system a standard time allowance is fixed for the
performance of a job and bonus is paid if time is saved.
Under Rowan System, the bonus is that proportion of the time wages as time saved bears to the
standard time.

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 14

“PATSHALA – Experience The Joy of Learning” “COSTING”

Bonus = Time Taken X Time Saved X hourly rate

Time Allowed
Example explaining highly efficient worker and less efficient worker obtaining same bonus:
Time rate (per Hour) ₹ 60 Time allowed 8 hours.
Time taken by ‘X’ 6 hours.
Time taken by ‘Y’ 2 hours.
Bonus = Time Taken X Time Saved X hourly rate
Time Allowed

For ‘X' = 2hours X 6 hours X ₹ 60 = ₹ 90

8hours
For ‘Y' = 6hours X 2 hours X ₹ 60 = ₹ 90
8hours
From the above example, it can be concluded that a highly efficient worker may obtain same bonus
as less efficient worker under this system

Question 13
SMC Company Limited is producing a particular design of toys under the following existing
incentive system:
Normal working hours in the week 48 hours
Late shift hours in the week 12 hours
Normal working: ` 150 per hour Late shift: ` 300 per hour
Average output per operator for 60 hours per week (including late shift hours): 80 toys.
The company's management has now decided to implement a system of labour cost payment with
either the Rowan Premium Plan or the Halsey Premium Plan in order to increase output, eliminate
late shift overtime, and reduce the labour cost.
The following information is obtained:
The standard time allotted for ten toys is seven and half hours.
Time rate: ` 150 per hour (as usual).
Assuming that the operator works for 48-hours in a week and produces 100 toys, you are required to
calculate the weekly earnings for one operator under-
(i) The existing Time Rate,
(ii) Rowan Premium Plan and,
(iii) Halsey Premium Plan (50%). (5 Marks, May ‘23)

Solution:
Working Notes:
1. Effective rate per hour:
Incentive for 60 hours = (` 150 × 48 hours + ` 300 × 12 hours) = 7,200 + 3,600 = ` 10,800
= ` 10,800 ÷ 60 hours = ` 180 per hour

www.patshala.co.in 99 66 05 06 07 15
“CA/CMA Inter” “Labour”

2. Time taken/ Allowed to produce 100 toys:

= (60 hours ÷ 80 toys) × 100 toys = 75 hours
3. Time saved = Time Allowed – Time Taken
= 75 hours – 48 hours = 27 hours
(i) Calculation of weekly earnings for one operator under the existing time rate:
= (48 hours x ` 150) + (12 hours x ` 300) = ` 10,800
Alternative solution
= Effective rate per hour (WN-1) × Time required for 100 toys (WN-2)
= ` 180 × 75 hours = ` 13,500
(ii) Calculation of weekly earnings for one operator under Rowan Premium plan:
(Time taken × Rate per hour) + (Time Saved/ Time Allowed × Time taken × Rate per hour)
= (48 hours × ` 150) + [(27 ÷ 75) × 48 × ` 150]
= 7,200 + 2,592 = ` 9,792
(iii)Calculation of weekly earnings for one operator under Halsey
Premium plan:

(Time taken × Rate per hour) + (50% of Time Saved × Rate per hour)
= (48 hours × ` 150) + (50% of 27 hours × ` 150)
= ` 7,200 + ` 2,025 = ` 9,225

“Kukatpally | S R Nagar | Himayathnagar | L B Nagar” 16