Hypothetical problems of labor costing and solution of these problems by using three incentive wage plans

1. Unit per hour Worker’s base pay
rate per hour
Overhead cost per
hour
15 $8.20 $5.40
20 8.20 5.40
25 8.20 5.40
30 8.20 5.40
35 8.20 5.40
40 8.20 5.40
45 8.20 5.40
3 minutes is to be the standard time required for producing 1 unit. Now, find out the conversion cost per unit using straight
piecework plan.
STRAIGHT PIECEWORK PLANSTRAIGHT PIECEWORK PLAN
Problem:Problem:
Solution
:

2. Units
P/H
Guaranteed
Hourly Rate
Piece
Rate
Earned
P/H
Labor
Cost P/U
Overhead
P/H
Overhead
P/U
Conversion
Cost P/U
15 $8.2 0 8.2 0.547 $5.4 0.360 0.907
20 8.2 0.41 8.2 0.41 5.4 0.270 0.680
25 8.2 0.41 10.25 0.41 5.4 0.216 0.626
30 8.2 0.41 12.30 0.41 5.4 0.180 0.590
35 8.2 0.41 14.35 0.41 5.4 0.154 0.564
40 8.2 0.41 16.40 0.41 5.4 0.135 0.545
45 8.2 0.41 18.45 0.41 5.4 0.120 0.530

3. i. Standard Production in One Hour:
3 minutes = 1 units
1 minutes = 1/3 units
60 minutes = 60/3 units
= 20 pieces per hour
So, Standard Piece Rate = Base Rate ÷ Piece P/H
= 8.2÷20
= 0.41
ii. Labor Cost P/U = Earned P/H ÷ Unit P/H
iii. Overhead P/U = Overhead P/H ÷ Unit P/H
iv. Conversion Cost P/U = Labor Cost P/U + Overhead P/U
Workings:Workings:

4. Mr. Jamal Uddin, employed by the Bata Company, submitted the following labor data:
Workers Hours worked Output units Base rate
Shamim 60 700 $8.00
Samad 40 500 7.30
Gomes 56 700 8.20
Hridoy 60 690 7.60
Rimon 45 400 7.00
Shipon 58 650 8.50
100% BONUS PLAN100% BONUS PLAN
Problem:Problem:

5. He also submitted that their standard production is 11 units per hour; overhead cost is $6.8 per hour, 8- hours’ shift. Now,
find out the conversion cost per unit using 100% bonus plan.
Workers Hours
Worked
Output
Units
Standard
Units
Efficiency
Ratio
Base
Rate
Effective
Hourly
Rate
Total
Earned
Labor
Cost
P/U
Overhead
P/H
Overhead
P/U
Conversion
Cost P/U
Shamim 60 700 660 1.06 $8.0
0
8.480 508.800 0.727 $6.8 0.583 1.310
Samad 40 500 440 1.14 7.30 8.322 332.880 0.666 6.8 0.544 1.210
Gomes 56 700 616 1.14 8.20 9.348 523.488 0.748 6.8 0.544 1.292
Hridoy 60 690 660 1.05 7.60 7.980 478.800 0.694 6.8 0.591 1.285
Rimon 45 400 495 0.81 7.00 _ 315.000 0.788 6.8 0.765 1.553
Shipon 58 650 638 1.02 8.50 8.670 502.860 0.774 6.8 0.607 1.381
Solution
:

6. i. Standard Units = Standard Production × Hours Worked
ii. Efficiency Ratio = Actual Output ÷ Standard Output
iii. Effective Hourly Rate = Base Rate × Efficiency Ratio
*When the efficiency ratio is less than 1.00 no bonus is earned
iv. Total Earned = Effective Hourly Rate × Hours Worked
v. Labor Cost P/U = Total Earned ÷ Output Units
vi. Overhead P/U = Overhead P/H × Hours Worked ÷ Output Units
vii. Conversion Cost P/U = Labor cost P/U + Overhead P/U
Workings:Workings:

7. Employees of G&G work in groups of 11, plus a group leader and each is paid $15 an hour for a regular 8- hours shift.
Standard production is 80 units per hour or 640 units per shift. Overhead is $480 per 8- hour shift or $60 per hour.
The production record of a group shows:
Unit produced
680
700
880
620
660
960
Now, find out the conversion cost per unit using group bonus plan.
GROUP BONUS PLANGROUP BONUS PLAN
Problem:Problem:

8. Unit
produced
Standard Hours
for Units
Produced
Actual
Hours
Regular
Group
Wage
Bonus
(hours
saved @ 15)
Total
Group
Earnings
Labor
Cost P/U
Overhead
P/U
Conversion
Cost P/U
680 (680÷80×12)=102 96 $1440 90 1530 2.25 0.706 2.956
700 (700÷80×12)=105 96 1440 135 1575 2.25 0.686 2.936
880 (880÷80×12)=132 96 1440 540 1980 2.25 0.545 2.795
620 (620÷80×12)=93 96 1440 0 1440 2.32 0.774 3.094
660 (660÷80×12)=99 96 1440 45 1485 2.25 0.727 2.977
960 (960÷80×12)=144 96 1440 720 2160 2.25 0.500 2.750
Solution
:

9. i. Standard Hours for Units Produced:
80 units = 1 hours
1 units = 1/80 hours
680 units = 680/80 hours
= 8.5 hours × 12 workers
= 102 hours
ii. Actual Hours = Number of Workers × Shifted Hours
iii. Regular Group Wage = Shifted Hours × Number of workers × Wage
iv. Bonus = (Standard Hours for Units Produced – Actual Hours) × Wage
v. Labor Cost P/U = Total Group Earnings ÷ Unit Produced
vi. Overhead P/U = Overhead P/S ÷ Unit Produced
vii. Conversion Cost P/U = Labor Cost P/U + Overhead P/U
Workings:Workings:

10. i. Standard Hours for Units Produced:
80 units = 1 hours
1 units = 1/80 hours
680 units = 680/80 hours
= 8.5 hours × 12 workers
= 102 hours
ii. Actual Hours = Number of Workers × Shifted Hours
iii. Regular Group Wage = Shifted Hours × Number of workers × Wage
iv. Bonus = (Standard Hours for Units Produced – Actual Hours) × Wage
v. Labor Cost P/U = Total Group Earnings ÷ Unit Produced
vi. Overhead P/U = Overhead P/S ÷ Unit Produced
vii. Conversion Cost P/U = Labor Cost P/U + Overhead P/U
Workings:Workings: