L22 Employee Cost Part 7 (tet re ere Role OPW Tea eel oN oC POP) Pranav Popat + Lesson 20 + Mar 9, 2023Ekagrata Batch CA Inter Nov 2023 Cost and Management Accounting Employee Cost LC Nee = TONG ae4 5 o > 5 2 5 rete Weare together Feb a Apr May Jun Jul ‘Aug Micsion80+ Sep Oct i 31" Aug 2 Now G2 Class End Exam Start —_.,—__“ ) Regular Batch Group 2 Classes ‘Conceptual Clarity ICAI Study Mat, With G2 classes you should keep See aes ‘connection with subject by Weekly doing One-Shot Revisions UY Dedicated Revision Period + Mock Papers Revision by Se Study or ‘Blend of Self and Marathon Lectures + Sincere Paper Solving (min 3)My Introduction ~ First Attempt Chartered Accountant — Byears of experience post CA Educator by Passion/ Choice & Dil Se D Worked with MNC Educator for CA Intermediate Cost and Management Accounting > CAFoundation Maths, LR and Stats and Hailing from Dindori, MP a B 8 Hy a A A is 4 5 2 A Y 2 a 3 ty £ A 8 8 A 8 5 gBattin Aon 2023” CA-Intermediate Regular Batch for Nov 2023 ACCOUNTS accounts | accounts | Accounts ‘Anshul Sir AnshulSir | Anshulsir | Anshul Sir law law Law cosTinG costine costineGROUP-1 OVER RTS eh GROUP-2 STARTS TestsMy Timings and Days Days: Monday to Saturday > Live Time: 3 PM to 5 PM > Recording can be watched anytime after class is conducted > Sundays are for rest, contingencies, chapter-wise test etc.To get complete details Watch Lecture 1| New Chapter Alert! > March 10" (tomorrow) > Overheads Cost (Chp4 of Study Mat)Upcoming Test > Topic: Employee Cost > 12! March 2023, Sunday > Paper upload by 5 pm on Google Drive > Test Discussion at 10 pmPYQ Dec 2021- Qle t=» ens Lax is = a4 (c) A skilled worker is paid a guaranteed wage rate of % 150 per hour. The standard time allowed for a job is 10 hours. He took 8 hours to complete the job. He has been paid the wages under Rowan Incentive Plan. Sit = BXISO + a4o = [440 You are required to: ae (i) Calculate an effective hourly rate of earnings under Rowan Incentive Plan. = I80/hy (iy Calculate the time in which he should complete the job, if the worker is placed under Halsey Incentive Scheme (50%) and he wants to maintain the same effective hourly rate of earnings. Halsey, Etthouly rake = [80 Le Actual how” be AY [SOAK 4 (io-AH)ysel-¥ Iso = Ig0 Ak ISORH + Tso4H# TSAK ~ 1S0AH AH = 7-(428 hows(©) (Calculation of Effective hourly rate of earnings under Rowan Incentive Plan: ‘Standard time allowed = 10 hours Time taken = 8 hours; Time saved = 2 hours Particulars ‘Amount ®) ‘A_| Basic guaranteed wages (7150%8 hours) 4.200 8 | Add: Bonus for time saved ( 28 x x 150) 20 C_| Total eamings (A+B) 4.440 D_ | Hours worked Bhous E [Effective houty rate (C*D) rT) (ii) Let the time taken to complete the job is "T" and the time saved is 10-T Effective hourly rate under the Halsey Incentive scheme __ (Rate x Hours Worked) + (Rate x 50% of Time Saved) _ = 2180 Hours Worked {C1021 EHO O-T ap 150 + 750 -75T = 180T 180T-75T = 750 14 hoursPYQ Jan 2021 - Q2a w (a) Z Ltd is working by employing 50 skiled workers. itis considering the introduction of an SH = 6120 x|.475 = 12.037 incentive scheme - either Halsey Scheme (with 50% Bonus) or Rowan Scheme - of wage payment fr increasing the labour producti to adjust with the increasing demand forts 7 EZ products by 40%. The company feels that if the proposed incentive scheme could bring AH= 24 x8 X se = gcoo ‘about an average 20% increase over the presen! earnings of the workers, it could act as ‘sufficient incentive for them to produce more and the company has accordingly given WS = 2437 assurance tothe workers. Because of this assurance, an increase in productivity has been observed as revealed by Hotbey : the figures fr the month of Apri, 2020: Hourly rate of wages (guaranteed) 750] (9600 xS8) +(2487 ¥soxso7:) ‘Average time for producing one unit by one worker at the previous | 1.975 hours} — S42|7S performance (this may be taken as time alowed) _ suis : ‘Number of working days in a month | Eftrate = fae S447 [how ‘Number of working hours per day ofeach worker a) 1 ~ co ca pc ae e20mits be * S217 x19 = 129+) Reauies " ae () Cakstte to enactvo cress a oeringe cf wortre percentage tonne vad IEOS XS) +GRt Meee x50) Halsey ad Rowan schon. i) Cakulat te savin noms of nt = (Cate segs 02 Us ws ret wba sp nt under a Be saa7ey AERIS (i) Adve 2 Li sat te selection ote scheme that woul fl Is ossace of “Eftvale = 60-28 20-584: incentvisig workers and also to adjust withthe increase in demand. (10 Marks)EY ES Od A cel Sa EM SAVED 4 126 y a hoc eie SLLsk Bais Pee cali) SCaeYReS pt(a) Working Note ca Total time wages of 50 workers per month: 'No. of working days in the month x No. of working hours per day of each worker » Hourly rate of wages * No. of workers 24 days xB hes. & 60 x 50 workers = & 4,80,000 Time saved per month: Time allowed per unit toa worker 4.975 hours 'No. of units produced during the month by 50 workers 6.120 units Total te allowed to produce 6,120 units (6,120 x 1.975 hrs) 12,087 hours ‘Actual time taken to produce 6,120 units (24 days x 8 hs. x 50 workers) 9,600 hours Time saved (12,087 hours — 9,600 hours) 2,487 hours Bonus under Halsey scheme to be paid to 50 workers: Bonus = (50% of time saved) « hourly rate of wages = 50/100 * 2,487 hours « & 50 = % 62,175 Total wages to be paid to 50 workers are (& 4,80,000 + & 62,175) & 5,42,175, ifZ Ltd. considers the introduction of Halsey Incentive Scheme to increase the worker productivity,4. Bonus under Rowan Scheme to be paid to 50 workers: Time taken Time allowed = 9.600 hours 12,087 hours Total wages to be paid to 50 workers are (& 4,80,000 + % 98,764) 2 5,78,764, if Z Ltd considers the introduction of Rowan Incentive Scheme to increase the worker productivity Bonus x Time saved * hourly rate % 2,487 hours x & 50 = % 98,764 (i) (a) Effective hourly rate of earnings under Halsey scheme: (Refer to Working Notes 1, 2 and 3) __ Tota tme wages of 50 workers + Total bonus under Halsey scheme Total hours worked 5648-050 250 Effective increase in earnings of worker (in 6) = 10(b) (i) (a) Effective hourly rate of earnings under Rowan scheme: (Refer to Working Notes 1, 2 and 4) __ Total time wages of 50 workers + Total bonus under Rowan scheme Total hous worked 74,80,000+ 96,87 = TA 80,0005 96.878 & 64 9 9600 hours O79 Effective increase in earnings of worker (in 9) SERS 5 00 58% ‘Saving in terms of direct labour cost per unit under Halsey scheme: (Refer to Working Note 3) Labour cost per unit (under time wage scheme) = 1.975 hours x & 50 = & 98.75 Labour cost per unit (under Halsey scheme) __ Total wages paid under the schem _ €5,42,175, = s¥ 88.60 Total number of units produced 6,120 Saving per unt = ® 98.75 ~@ 88.60= € 10.15 /(b) Saving in terms of direct worker cost per unit under Rowan Scheme: (Refer to Working Note 4) Labour cost per unit under Rowan scheme = & 5,78,764/6,120 units= & ae i 16 ~ ud¢0 Saving per unit= €98.75- 29457 = 8 4.1/ ore Vrs (ii) Calculation of Productivity: Glao Normal Production Hours worked/Unit per Hour (9,600/1.975) | 4861 ‘Actual Production Units 6,120 Increase in labour productivity 1,259 Inacoxe 12.60 % Productivity ie. increase in production/Normal production | 25.9% ‘Advice: Rowan plan fulfils the company's assurance of 20% increase over the present | 5 3s -qarle ‘earnings of workers. This would increase productivity by 25.9% only twill not adjust with the increase in demand by 40%‘Two workmen, A and 'B, produce the same product using the same material. Their normal) wage rate is also the same. ‘A is paid bonus according to the Rowan system, while ‘Bis paid bonus according to the Halsey system. The time allowed to make the product is 50 hours. A takes 30 hours while ‘8’ takes 40 hours to complete the product. The fa: Y overhead rate is Rs.5 per man-hour actually worked. The foctery cost for the product for ‘A is & 3,490 and for ‘B" it is § 3,600 Required: (@) Compute normal rate of wages (©) Compute cost of Material cost: (©) Prepare a statement comparing the factory cost of the products as made by two workmen OTHER PROBLEMS ON ABSORPTION OF WAGES. Que 12 ‘A worker is paid Rs. 10,000 per month and a dearness allowance of Rs. 2,000 pm. Worker contribution to provident fund is © 10% and employer also contributes the same amount as the employee. The Employees State Insurance Corporation premium is 6.5% of wages 317 /oN lc ae See a coskng ad CoN Ca Pan) Basic (16,000 xj2) iPr ST) DISCa Ck Ee) pay SG Err) iPass} te aA eT CID COR ol} ed LES Ce CTS ei ey BOA eaaess Boe as Se ae era eaten er 779-642] how Cer we eines eric Aerieleo weae aS a es purpese Basic (16,000 jz) [PEF ST.) DI GRCCh aE iy 24eee are ae a eC) \4400 lo a a boy eae Danco STG) alae OL RCS Sem) or ao Geges ree Se > hoof eHechve hows eae Pane So SO gpm COOP et a Ceo Sim) ro en Ean)Unckl Cad of eft hou mS ares pee ETC [em bs5) a a Wella) eae) Pe (\s v8) Pears aes PITYorp pyse. 1-95 employs 4-75 of which 1.75% is paid by the employees. It is the firm's practice to pay 2 months’ wages Gs as bonus each year. The number of working days in a year are 300 of 8 hours each. Out of these the worker is entitled to 15 days leave on full poy. Celculate the wage rate per hour for costing purposes. fw cS 13 | SM Illustration 13 Notebook Page no. Calculate the Employee hour rate of a worker X from the following data: Basic pay 10,000 pm DA 3,000 pm. Fringe benefits % 1,000 p.m. Number of working days in a year 300. 20 days are availed of fas holidays on full pay in a yeor. Assume a day of 8 hours. EMPLOYEE/ LABOUR TURNOVER = Meaning : -Employee turnover or labour turnover in an organisation is the rate of change in the composition of employee force during a specified period measured against a suitable index. Flux with new recruitment Replacement DETAIL EXPLANATION Method | Formula aad Number of employees Replaced during the period Method “Average rumber of employees during the period Note : Replacement do not includes new joinees on account of expansion Sepa Number‘ of eng heyees! Seperated dirina theperiod! 25 Method “Average rumber of employees during the period Note : Separation means no, of employees left and discharged. 3.18GPa =) changes SOW CN tS) toe wy Oat oal aeSS oa CE oo Se Wo. of veflacament = Wo. of Ot aaa ony EN ha DNS Score CE TRO Sea CO otal SA ea een OZ no. of employers, = opening sia 2Flux Number of employees Separated + Replaced diring the period | 199 Method ‘Average number of employees during the period wtedeReplaced+Newly Joined during the period joyees during the period “ie Flux with new |No. of employees Sep: ‘Average number of en Recruitment Alternatively, No.of Separations + No.of Accessions Average number of employees during the period” Note: Some Management Accountants consider New Recruited employees as part of ‘turnover and some do not. It depends on Company Policy also. ‘Average no. of employees No. of employees at the beginning + No. of employees at the end of the period 2 Equivalent Employee Turnover Rate ‘Annualizing the turnover ratean’ Staley Ln ployer Tle 3 pr Meplaument mood = !2'° Annual mk = [2x4 = YB rongNal BND emote AS Cc SYR Ce oe ee No. of replacements = 35 Tae see . Sab CoN ea Ca nv. of Worker, aE) ye Sa) Co aes ea = Sf anne PLT eT A ad Eee)CS Sea aT i (Pn xing Separch n= 3'|e Le Sh SAPRELITE 5 = ep aug he. of wanes, ene So) IRS he of sepmratond =|2 NC Sa CES aa ee et aC FluxMethed Rate = 10"[- ho. oF Stpuah mn + Pe eeed aT oe KIO a ae eas ae /ie 18+ vo. of accersion rd eG ho. of accemjon = 42 OD MC Sd oe ea Palit) wo. of worker Cor Per ae? ema MT aoe aoa CY PC Ea Naame: SC ELD aa Lt ee mae teatEmployee turnover for the period (quarter, month, day) x (4 or 12 or 365) Que 14 | SM Tilustration 14 Notebook Page no. The Accountant of Y Ltd. has computed employee turnover rates for the quarter ended 3st March, 20X1 as 10%, 5% and 3% respectively under ‘Flux method’, ‘Replacement method’ and ‘Separation method’ respectively. If the number of workers replaced during that quarter is 30, find out the number of workers for the quarter (i) recruited and Joined and (ii) left and discharged and (iii) Equivalent employee turnover rates for the year Cost Associated + Preventive Costs: Cost to prevent turnover like Medical Benefits, Wage hike ete + Replacement Costs: Cost due to turnover - recruitment, training ete. Cause and Effects Causes Remarks Effects Personal Cause | Change, il, Family problem, discontent | Disturbance in flow of work env. production 3.19Caan : Le oe aan as ion riCauses Remarks Effects Unavoidable Couse Avoidable Cause ‘Seasonal, input shortage, location change, disability Dissatisfaction of job, hours supervisor, training, facilities, low wages Low efficiency of new workers Increased cast of training, cost of recruitment Que 15 | SM Illustration 15 Notebook Page no. ‘The management of BR Ltd. is worried about their increasing employee turnover in the factory and before analyzing the causes and taking remedial steps, it wants to have on idea of the[profit foregone] las a result of employee turnover in the last year Last year sales amounted to Rs. 83,03,300 and P/V ratio was 20 per cent. The total number of actual hours worked by the direct employee force was 4.45 lakhs. The actual direct employee hours included 30,000 hours attributable to training new recruits, out of which half of the hours were unproductive. As a result of the delays by the PersonnelPV Rao = 2p} Csimilon +» profit -/-) —— > rls POUL ROSE Soop aor)Department in filling vacancies due to employee turnover 1,00,000 potentially productive hours (excluding unproductive hours ) were lost. ‘The costs incurred consequent on employee turnover revealed, on analysis, the following! Settlement cost due to leaving Rs. 43,820 Recruitment costs Rs. 26,740 Selection costs Rs, 12,750 | Training costs Rs, 30,490 | ‘Assuming that the potential production lost as a consequence of employee turnover could have been sold at preveiling prices, find the profit foregone last year on account of employee turnover ° 3.20 /otis BS Mn CCR ee CSR eee ets beni ITCUCN I ROTI oa ) e Ane Cd wc aI MRO SESS CITee SSS SESOUS UCR see eeeaa Wrote] ost hou, his Talla MAS GNA SIS) i (91900 £> Ve ER ACUCC MONCH 100,000 cag TN tall NeXt STS S IS URES Se \Iso00 howsFOXES Me Ca ML STSCI OCS LCS CASTE Soo BE Sole, lost due fe WSO0d “Vosthoug = 87103,200 | Trey = 2220¢So Sa sos le) mead a aie ea Reh SE Cl) eel)ns sah ait Pree So Cea la caer eae LT CCrIeyS 220 ee an Reenuitmeud cog ae SS aR eves “ree or Eee EEE Cie}PY @s2z! QeQue 10 | SM Exercise Que 2 Notebook Page no, Wage negotiations are going on with the recognized employees' union, and the management wants you as the as an executive of the company to formulate an incentive scheme with a view to increase productivity ‘The case of three typical workers A, B and C who produce respectively 180, 120 and 100 units of the company’s product in a normal day of 8 hours is taken up for study. ‘Assuming that day wages would be guaranteed at Rs. 75 per hour and the piece rate would be based on a standard hourly output of 10 units, Calculate the earnings of each of the three workers and the employee cost per 100 pieces under (i) Day wages, (ii) Piece rate, (iil) Halsey scheme, and (iv) The Rowan scheme. Also calculate under the above schemes the average cost of labour for the company to produce 100 pieces. Que 11 SM Tllustration 8 Notebook Page no.See eS ect RAC Carr yok is LSlhow, lediog (Coe Nt Rtg er Bs RN are) Cr eee ae as ccd i i Yi om Faron st = Dire} Matial aaiein ae a Vo SCORER od cL RSD) ce a So) qi) Ns owY O l ee OD) S605 = M+ 4SR4 290 ai)iba eq() Jo = 0 +SR4S50 R = 20/ hous, Sian oy a SCD) SS Se Reva aS Me PASSPou eC Direct W La Gonug a EN ak rN eae) £00 Aaa ISo 3430 K caelS ere) =) orca} aC 38 2550 b- Solo) 100 * 290 2600 we '0 X20 xso7-bang eee een See |: 0 V3 fs Mypayments also Ser ules _ Yala emeaceUciakea Me nauseaSMa eee cL Scr ce rate method exist To usse mera kya faiyda eaeEEN eee Please help me with this doubt 30,000 hours attributable to ing new recruits: 4SMa een Please help me with this doubt Realising Employer uses Day wagesSMa eee err Please help me with this doubt When Employee wants to leave‘Two workmen, A and 'B, produce the same product using the same material. Their normal) wage rate is also the same. ‘A is paid bonus according to the Rowan system, while ‘Bis paid bonus according to the Halsey system. The time allowed to make the product is 50 hours. A takes 30 hours while ‘8’ takes 40 hours to complete the product. The fa: Y overhead rate is Rs.5 per man-hour actually worked. The foctery cost for the product for ‘A is & 3,490 and for ‘B" it is § 3,600 Required: (@) Compute normal rate of wages (©) Compute cost of Material cost: (©) Prepare a statement comparing the factory cost of the products as made by two workmen OTHER PROBLEMS ON ABSORPTION OF WAGES. Que 12 ‘A worker is paid Rs. 10,000 per month and a dearness allowance of Rs. 2,000 pm. Worker contribution to provident fund is © 10% and employer also contributes the same amount as the employee. The Employees State Insurance Corporation premium is 6.5% of wages 317 /