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Incentives

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Published in: Accountancy | B.Com Tuition | Cost Accounting and Financial Management
9,199 Views

Explains the Various Methods of Calculating Incentives Payable to Employees and Also Suggest the Selection o the Best method of Wage Payment.

Dr.Amit G / Delhi

22 years of teaching experience

Qualification: Ph.D ( - 2012), M.Com ( - 2002), MBA/PGDM ( - 2010), B.Com ( - 2000)

Teaches: Accountancy, Economics, Costing, Financial Management, Statistics, BBA Subjects, Management Subjects

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  1. Minimum Guaranteed Wage and Incentive Plans The incentive/bonus plans vary in format and applications. They fall into two categories. (1) Differential price rate schemes (i) Taylor Differential Piece Rate (ii) Merrick Differential Piece Rate (iii) Gantt Task and Bonus Plan (2) Premium bonus plans 1/10/2018 Dr. Amit Gupta
  2. Taylor Differential Piece Rate System Under the Taylor Differential Piece Rate System, there are two piece wage rates: a low rate for output below standard performance and a higher rate applicable to workers where production is above standard. The efficiency of a worker may be determined as a percentage of (i) time allowed for a job to the actual time taken or (ii) actual output to standard output within a specified time. 1/10/2018 Dr. Amit Gupta
  3. Example 2 Assuming the following facts, calculate the earnings of workers under Taylor Differential Piece Rate System: + Standard time per piece; 20 minutes + Normal rate per hour, Rs 9 + In a 9-hour day, A produces 25 units and B produces 30 units. Differential to be applied: 80 per cent of piece rate below standard and 120 per cent above standard. Solution Efficiency of Piece rate of Earnings of 1/10/2018 B B B = 92.6 per cent = (25/27) x 100 = 111 per cent = (30/27) x 100 = 0.80 x Rs 3 = Rs 2.4 = 1.2 x Rs 3 = Rs 3.6 = 25 x Rs 2.40 = Rs 60 = 30 x Rs 3.60 = Rs 108 Dr. Amit Gupta
  4. Merrick Differential Piece Rate System Merrick Differential Piece Rate System is a modification of/improvement over the Taylor Differential Piece Rate System. It uses three piece rates. Normal piece rates are paid when output is upto 83 per cent of the standard output; 110 per cent of normal piece rates are paid for output between 83—100 per cent; 120 per cent is paid if the output exceeds 100 per cent. 1/10/2018 Dr. Amit Gupta
  5. Example 3 From the under-mentioned facts, calculate the earnings of A, B and C under the Merrick Differential Piece Rate System: + Normal piece rate (upto 83 per cent of high task output), Rs 10 per unit; High task, 40 units per week + Output for the week: A, 32 units; B, 37 units; C, 42 units. Solution Efficiency of Wages of 1/10/2018 B C B C = (32 x 100) 40 = 80 per cent = (37 x 100) + 40 = 92.5 per cent = (42 x 100) 40 = 105 per cent = 32 x Rs 10 = Rs 320 = (37 x Rs 10 x 110) + 100 = Rs 407 = (42 x Rs 10 x 120) + 100 = Rs 504 Dr. Amit Gupta
  6. Gantt Task and Bonus Plan Gantt Task and Bonus Plan is a mixture of a guaranteed time rate with a bonus and piece rate plan using the differential plan when output is below standard (efficiency below 100 per cent), time rate is guaranteed. In case of output at standard level (100 per cent efficiency) bonus at the rate of 20 per cent on time rate is payable while a higher piece rate on the whole output is paid if output exceeds standard. 1/10/2018 Dr. Amit Gupta
  7. Example 4 Calculate the wages of A, B and C under the Gantt Task and Bonus Plan from the facts given below: Time rate, Rs 10 per hour for 40-hours week Standard production, 40 units per week Piece rate above standard output, Rs 12 Weekly output: A, 32 units; B, 37 units; C, 42 units Solution Wages: A = Rs 400 (40 x Rs 10): output below standard (32 units) B = Rs 400 (40 x Rs 10): output below standard (37 units) C = Rs 504 (42 x Rs 12): output above standard (42 units) 1/10/2018 Dr. Amit Gupta
  8. Premium Bonus Plans Under the time rate basis of wage payment, additional production beyond normal level benefits the employer(s); with piece rate system, the benefit goes to the employee(s). Bonus plans are a mid-way in the sense that the savings are shared between them. These plans include (i) Halsey/HaIsey-Weir Plan and (ii) Rowan Plan. 1/10/2018 Dr. Amit Gupta
  9. Halsey Premium Plan Under the Halsey Premium Plan the earnings and bonus of a worker is computed as below. Earnings = (Time taken x rate) + [0.50 x (Standard time — Time taken) x Rate] Bonus = [0750 x (Standard time — Time taken) x Rate]. Halsey-Weir Premium Plan Halsey-Weir Premium Plan is similar to Halsey Plan with the difference that the bonus/premium is usually applied on 33.33 : 66.67 basis. 1/10/2018 Dr. Amit Gupta
  10. Example 5 The standard time for Job Exe is 6 hours while the time given to complete the work is 10 hours. The wage rate is Rs 4 per hour. If the job is completed in 8 hours, compute the earnings per hour using Halsey Premium and Halsey-Weir Premium plans. Solution Computation of Wages and Earnings per Hour Halsey premium (8 x Rs 2) + 0.50 x Total wages Earnings per hour 1/10/2018 (Rs 18 + 8) = Rs 18 2.25 Dr. Amit Gupta Halsey-Weir plan (8 x Rs 2) + 0.333 x (2 x Rs 2) = (Rs 17.33 + 8) = Rs 17.33 2.17
  11. Rowan Plan According to the Rowan Plan earnings and bonus are computed as below: Workers earnings = (Time taken x Rate per hour) + (Standard time — Time taken) + Standard time] x Time taken x Rate Per hour. Bonus = (Time taken + Time allowed) x Time saved x Time rate. 1/10/2018 Dr. Amit Gupta
  12. Example 6 From the under mentioned facts, calculate bonus, total earnings, and rate of earnings per hour under the Rowan plan: + Time allowed, 6 hours + Time taken, 4 hours *Hourly rate, Rs 3 Solution Bonus Earnings Earnings per hour 1/10/2018 = [(4/6) x 2 x Rs 3 = Rs = (4 x Rs 3) + Rs or [(6-4) + 6] x 4 x Rs 3 = Rs 16 +4 = Rs 4 Dr. Amit Gupta
  13. Bedaux Point Plan Under this plan, a guaranteed hourly rate is paid until standard production is achieved, and a premium or additional wage is paid for units in excess of standard. Example 7 From the information given below, compute bonus and total earnings according to Bedaux Point Plan: Standard production for 8 hours daily = 100 (number) Actual production for hours daily = 120 (number) Hourly wage rate = Rs 3 Solution Standard points Actual points Points saved Bonus earned Total earnings 1/10/2018 = 8 x 60 = 480 (B) = (120 x 480) + 100 = 576 (B) = 576 - 480 = 96 x 0.75 = 72 = (72 x Rs 3) + 60 = Rs 3.60 = (8 x Rs 3) + Rs 3.60 (bonus) = Rs 27.60 Dr. Amit Gupta

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