Course: CA/CMA-Intermediate

Subject: Cost & Management Accounting

TOPIC: EMPLOYEE COST
Time: 2Hr. MM: 60 Marks

Q1(a): GZ Ltd. 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
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 excluding 15th 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
(9 Marks)

(b): From the following Particulars, calculate the labour cost per man-day of 8 hours:
(a) Basic Salary ₹2 per day
(b) Dearness allowance 25 Paise for every point over 100 cost of
living Index for working class- current cost
of living index is 700 points.
(c) Leave Salary 10% of (a) and (b)
(d) Employer’s contribution to Provident Fund 8% of (a), (b) and (c)
(e) Employer’s contribution to State Insurance 2.5% of (a), (b) and (c)
(f) Expenditure on amenities to labour ₹20 per head per month.
(g) Number of working days in a month 25 days of 8 hours each.
(6 Marks)

(c): From the following information, calculate labour turnover rate as per three methods and labour flux rate:
No. of workers as on 01.01.20X8 = 7,600
No. of workers as on 31.12.20X8 = 8,400
During the year, 80 workers left while 320 workers were discharged and 1,200 workers were recruited during the
year; of these, 300 workers were recruited because of exits and the rest were recruited in accordance with expansion
plans.
(5 Marks)

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Q2(a): 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 work
is (a) 100% (b) 75% (c) 50% & (d) 25% of budgeted hours.
(10 Marks)

(b): The management of a company wants to formulate an incentive plan for the workers with a view to increase
productivity. The following particulars have been extracted from the books of a company.
Piece Wage Rate ₹10
Weekly Working Hours 40
Hourly Wages Rate ₹40 (Guaranteed)
Standard/Normal Time Taken per unit 15 minutes.
Actual Output for a week:
Worker A 176 pieces
Worker B 140 pieces
Under Halsey scheme, worker gets a bonus equal to 50% of Wages of Time Saved.
Calculate: Earnings of workers under Halsey’s and Rowan’s Premium Scheme.
(6 Marks)

(c): Describe briefly, how wages may be calculated under the following systems:
(i) Rowan system
(ii) Halsey system
(4 Marks)

Q3(a): A worker takes 9 hours to complete a job on daily wages and 6 hours on a scheme of payment by results. His
day rate is 75 paise an hour, the material cost of the product is ₹4 and the overheads are recovered at 150% of the
total direct wages. Calculate the factory cost of the product under: (a) Rowan Plan (b) Halsey Plan.
(6 Marks)

(b): Following are the particulars of two worker 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 hours. 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 employee’s
contributions.
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.
(6 Marks)

(c): Z Ltd is working by employing 50 skilled workers. It is considering the introduction of an incentive scheme – either
Halsey Scheme (with 50% Bonus) or Rowan Scheme – of wage payment for increasing the labour productivity to adjust
with the increasing demand for its products by 40%. The company feels that if the proposed incentive scheme could
bring about an average 20% increase over the present earnings of the workers, it could act as sufficient incentive for
them to produce more and the company has accordingly given assurance to the workers.
Because of this assurance, an increase in productivity has been observed as revealed by the figures for the month of
April, 2020:

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 Hourly rate of wages (guaranteed) ₹50
Average time for producing one unit by one worker at 1.975 hours
the previous performance (this may be taken as time allowed)
Number of working days in a month 24
Number of working hours per day of each worker 8
Actual production during the month 6,120 units
Required:
(i) Calculate the effective increase in earnings of workers in percentage terms under Halsey and Rowan scheme.
(ii) Calculate the savings to Z Ltd in terms of direct labour cost per unit under both the schemes.
(iii) Advise Z Ltd. about the selection of the scheme that would fulfil its assurance of incentivising workers and also
to adjust with the increase in demand.
(8 Marks)

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