INCENTIVE EXERCISES

(Topic 5)

SOLVED EXERCISE 1
STATEMENT: We wish to calculate the hourly premium and daily wage (using the
simple piece rate system, Rowan, and Hasley with β = 30%) that corresponds to an
employee who installs components in a circuit on a motherboard, if every hour install 100
components. The company determines a standard production of 560 components installed
in a 7-hour day, with an average salary of €63/day.

SOLUTION:

Different ways of calculating the activity coefficient using Te/Tr times (Te and
Tr times calculated, always for the same amount or volume of activity):

*) Tr (one component) = 60 minutes/100 components = 0.6 minutes/component

Te (one component) = 420 minutes/560 components = 0.75 minutes/component

a = Te/Tr = 0.75/0.6 = 1.25

*) Tr (100 components) = 1 hour

Te (100 components) = 1.25 hours

560 in 7 hours
100 at x = 1.25

a = Te/Tr = 1.25/1 = 1.25

*) Tr (560 components) = 5.6 hours

100 in 1 hour
560 at x = 5.6

Tea (560 components) = 7 hours

a = Te/Tr = 7/5.6= 1.25

Different ways of calculating the activity coefficient using Nr/Ne activity (Nr
and Ne activities calculated, always for the same time):

*) Nr (in one hour) = 100 components

Ne (in one hour) = 560 components / 7 hours = 80 components

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 a = Nr/ Ne = 100/80 = 1.25

*) Nr (in 7 hours) = 100 x 7 = 700 components

Ne (in 7 hours) = 560 components
a = Nr/Ne = 700/560 = 1.25

Simple piecework system

j = 63/7 = €9/hour

P = j (a - 1)
p= 9 (1.25 - 1) = €2.25/hour
Salary/hour = 9 +2.25 = €11.25/hour
Salary/day = 11.25 x 7 = €78.75/day

Rowan System
P = [j (a – 1)]/ a
P = [9 (1.25 – 1)]/1.25 = €1.8/hour
Salary/hour = 9 + 1.8 = €10.8/hour
Salary/day = 10.8 x 7 = €75.6/day

Halsey system
P = [j (Te – Tr) β] / Tr = j (a – 1) β for all 0<β<1
P = 9 (1.25 – 1) x 0.3 = €0.675/hour
Salary/hour = 9 + 0.675 = €9.675/hour
Salary/day = 9,675 x 7 = €67,725/day

SOLVED EXERCISE 2
STATEMENT: Company “Z” made a labor cost forecast at the beginning of last month.
This forecast, as well as the actual consumption, appear in the following table:

Amount Price Amount Price

Labour 2,400 hours €10/hour 2,304 hours ?

Standard costs Actual costs
It was agreed to pay workers incentives according to the Halsey system with β =
0.5. Effective production was 1,800 units, with a standard of 1,500 units having been
planned.

What was the real hourly wage that the workers received?

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SOLUTION:

We calculate the activity coefficient:

a = Te / Tr

Te (one unit) = 2,400 / 1,500 = 1.6 hours/unit

Tr (one unit) = 2,304 / 1,800 = 1.28 hours/unit

a = 1.6 / 1.28 = 1.25

We calculate the hourly premium and hourly wage:

P = j (a – 1) β = 10 (1.25 – 1) 0.5 = €1.25/hour

Salary/hour = 10 + 1.25 = €11.25/hour

SOLVED EXERCISE 3
STATEMENT: A company establishes a monthly salary of €1,350 (not including
bonuses), with the number of hours worked per month being 180. An operator receives
incentives according to the simple piecework system, with the piece costing €2.7 and his
real manufacturing time being 0.3 hours/piece. It is requested: a) Standard manufacturing
time of the part determined by the company. b) Monthly salary that said worker would
obtain if the company applied the Rowan system to calculate the premium.

SOLUTION:

a) If this worker charges €2.7 per piece (that is, for 0.3 hours of work), for each hour he
is charging:

2.7/0.3 = €9/hour = j + hourly premium

The company is paying €1,350 for every 180 hours of work, resulting in the average
hourly wage:

j = 1,350 / 180 = €7.5/hour

The bonus/hour that this worker receives will be:

P = 9 – 7.5 = €1.5/hour

P = j (a – 1) 1.5 = 7.5 (a – 1) solving for a = 1.2

a = 1.2 = Te / Tr = Te / 0.3 solving Te = 0.36 hours/piece

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b) P = [j (a – 1)] / a = [7.5 (1.2 – 1)] / 1.2 = €1.25/hour

Salary/hour = 7.5 + 1.25 = €8.75/hour

Salary/month = 8.75 x 180 = €1,575/month

SOLVED EXERCISE 4
STATEMENT: The estimated time for sewing a certain type of carpet is established at a
quarter of an hour/carpet, and the average hourly wage is €10. A worker is capable of
performing this task in 12.5 minutes, obtaining 2% rejections due to defective tasks.
Another worker performs the sewing task 40 times in an 8-hour day, but on
average he performs the task poorly once, and the corresponding rug is rejected.

The company determines 3% rejections as normal, establishing the following

corrective factors: Z = 1.2 if there are 1% rejections; Z = 1.1 if there are 2% rejections; Z
= 1 if there are 3% rejections; and Z = 0.9 if there are 4% rejections.

Determine the hourly wage (including the bonus) for each of the aforementioned
workers, considering the quality-production relationship.

SOLUTION:

First worker:

a = Te/Tr = 15 / 12.5 = 1.2

For 2% rejections Z = 1.1

P = j (Za – 1) = 10 (1.1 x 1.2 – 1) = €3.2/hour

Hourly wage = 10 + 3.2 = €13.2/hour

Second worker:

a = Te/Tr = 15 / 12 = 1.25

Tr = 480 minutes / 40 = 12 minutes / task

Percentage of rejections = 1 / 40 = 0.025 = 2.5%

Since the 2.5% of rejections is between 2% and 3% we will have to interpolate:

Z = 1.1 if there are 2% rejections

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 Z = 1 if there are 3% rejections

If we go from 2% rejections to 3% rejections (we increase rejections by 1%) then

Z goes from taking a value of 1.1 to taking a value of 1 (decreases 0.1). The question
would be, if we go from 2% of rejections to 2.5% of rejections (we increase the rejections
by 0.5%), how much will Z decrease (which for 2% of rejections takes the value 1.1)?

We increased rejections by 1% ---------^ Decrease Z by 0.1

We increased rejections by 0.5% --------------------^ Decreases Z by X (unknown)

X = (0.5 x 0.1) / 1 = 0.05 What decreases our starting Z is 0.05

So our Z will be:

Z = 1.1 – 0.05 = 1.05

Once the activity coefficient of this worker and the value of Z have been
calculated, the hourly premium and hourly wage are calculated:

P = 10 (1.05 x 1.25 – 1) = €3.125/hour

Hourly wage = 10 + 3,125 = €13,125/hour

PROPOSED EXERCISE 1
STATEMENT: The company Sube y Baja SA, in charge of the construction of a wall,
has decided to pay its workers bonuses based on their activity. The construction of 20 m 2
in a 6-hour day is calculated as a production standard, with an average salary of €8/hour.
What will be the daily salary that an operator who builds 25 m 2 will receive within a 6-
hour day?: a) According to the simple piece system. b) According to the Taylor-Merrik
system (K=1 if 1<a < 2; K=3/2 if 2<a < 3; K=2 if 3<a). c) According to the Rowan
system. d) According to the Halsey system (ß=0.30).

SOLUTION: a) 60; b) 60; c) 57.60; d) 51.60

PROPOSED EXERCISE 2
STATEMENT: A company establishes a standard completion time of 15 minutes for a
certain type of activity, with the average hourly wage paid by the company being €8. An
operator is capable of carrying out this activity 190 times in a work week (38 hours). This
company pays incentives to its workers following the Gantt differential system, paying a
bonus of €2/hour if the activity coefficient achieved by the worker is greater than or equal
to 1.2. It is requested: a) Determine whether the aforementioned worker meets the

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required condition to receive incentives. b) What is the coefficient k by which the average
hourly wage is multiplied to calculate the premium?

SOLUTION: a) Yes, since a=1.25; b) 0.25

PROPOSED EXERCISE 3
STATEMENT: A construction company hires a worker to perform a certain plastering
task. The company establishes an activity standard of 16 times the task for each work
week (40 hours), and an average salary of €8 per hour. The worker is capable of
performing the plastering task 80 times in a month of work (160 hours), but on average
he performs the task poorly twice and is rejected. The company determines 3% rejections
as normal, establishing the following corrective factors (Z=1.2 if 1% rejections occur;
Z=1.1 if 2% rejections occur; Z=1.0 if 3% rejections occur; Z=0.9 if 4% rejections
occur). Considering the bonus system that relates quality to production, it is requested: a)
Determine the monthly salary that this worker will receive. b) Another worker is capable
of carrying out the plastering task in 1 hour and a quarter (1.25 hours), receiving an
hourly bonus of €6.4. What % of times are you rejected for the plastering task?

SOLUTION: a) 1,680; b) 4%

PROPOSED EXERCISE 4
STATEMENT: A company establishes for a certain type of work an average hourly
wage of €8 without including the hourly premium. An operator charges €12 per hour
including the hourly premium and applying the simple piece-rate premium system, with 6
being the number of pieces he makes per hour. It is requested: a) Calculate the activity
coefficient of the worker mentioned in the statement and calculate the hourly wage that
said worker would earn if the Halsey system with ß=0.30 were applied to determine the
premium. b) Another worker, for the same type of work, is capable of making 10 pieces
in one hour. What will be your hourly premium if we apply the Rowan system?

SOLUTION: a) 1.5 and 9.20; b) 4.80

PROPOSED EXERCISE 5
STATEMENT: A company dedicated to the manufacture of office tables establishes the
production standard for a specific type of tables as 16 tables per day (8 hours), with the
salary paid per table being €3.75. Determine the daily salary of a worker whose output
every 6 hours is 15 tables, assuming a work day of 8 hours, if: a) We apply the simple
piece system. b) We apply the Rowan system.

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SOLUTION: a) 75; b) 72

PROPOSED EXERCISE 6
STATEMENT: The Capel company, which manufactures and sells a single product,
made the following estimate of costs and labor consumption at the beginning of last
month for a standard production that we do not know and that we intend to calculate. The
forecast of these costs and consumption was as follows:

TOTAL COST AMOUNT

LABOR €46,200 4,200 hours

At the end of the month, actual production reached 1,200 units of product, with the
actual costs and consumption of labor being the following:

TOTAL COST AMOUNT

LABOR €55,440 4,200 hours

It is requested:

a) Calculate the standard price and the actual price of the labor hour.

b) Knowing that the real price of the hour of labor incorporates a premium calculated
according to the simple piece system and that all operators worked at the same pace,
determine the company's standard production.

SOLUTION: a) 11 and 13.20; b) 1,000

PROPOSED EXERCISE 7

STATEMENT: A company establishes an average hourly wage of €8. Once the simple
piece system is applied, an operator charges €72 for every 15 pieces manufactured, with
the real manufacturing time being 0.4 hours/piece. It is requested: a) Standard
manufacturing time for each piece determined by the company. b) Hourly wage that said
operator would obtain if bonuses were granted applying the Rowan system.

SOLUTION : a) 0.6 hours; b) 10.67

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 PROPOSED EXERCISE 8

STATEMENT: The company TUR SA, which manufactures and sells a single product,
has a production standard of 100 units/month, using 2,100 hours of labor and paying €10
per hour.

Last month, effective production was higher than the standard and this without
increasing the number of hours of labor, but paying incentives according to the Halsey
system (ß=75%), which meant an hourly wage including the bonus of 11, €50. It is
requested to calculate the effective production of the past month.

SOLUTION: 120

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