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DISCUSSION QUESTIONS
11-1
Q11-1. Yes, to the extent that it is practical to meas-
ure the value added or the productivity of a
worker. However, measurement of the contri-
bution of each individual is never exact. Also,
a business cannot pay more for materials or
labor than the sales price will recover.
Materials, workers, and machines produce
products and services. There must be a differ-
ence between revenue and costs consumed;
otherwise, the business cannot survive.
Q11-2. Productivity may be defined as the measure-
ment of production performance using the
expenditure of human effort as a yardstick. In
a broader sense, it may be described as the
efficiency with which resources are converted
into commodities and/or services that people
want.
Q11-3. Productivity is important to a firm because
high productivity reduces the unit cost of the
output and makes the firm more competitive.
It is important to workers because their real
earnings should be increased when produc-
tivity is high. Productivity is important to soci-
ety because increased productivity enables
society to get more and better output from the
basic resources of the economy.
Q11-4. To measure labor efficiency, it is necessary to
establish a standard of performance. This
means determining how much a worker
should be able to produce, or how much a
work crew should be able to produce. The
standard is determined by time and motion
study, test runs by skilled workers, and aver-
ages of past performance by skilled workers.
Q11-5. The purpose of an incentive wage plan is to
induce a worker to produce more, resulting in
a higher wage and reduced conversion cost
per unit. Frequently, machine output is limited
by worker performance. If employee perform-
ance can be increased, machine cost per unit
of production will decrease. An incentive
wage plan may also reduce loafing, indiffer-
ence, and carelessness, and may generate a
cost-conscious labor force.
Q11-6. Generally, hourly earnings go up with
increased production, and labor cost per
unit of output is reduced. High production
rates also reduce overhead cost per unit of
output, which is often the most significant
savings.
Q11-7. (a) During periods of curtailed activity, it is
just as necessary to keep costs down as
it is when operating at full capacity.
Assuming that the incentive wage plan
resulted in greater labor efficiency and
lower costs per unit at full capacity, then
the labor cost per unit should be lower in
a slack period if the incentive wage scale
is continued. A shorter workweek or some
other system of sharing the work would
be indicated.
(b) Ordinarily, it is not a propitious time to ini-
tiate an incentive wage plan when a plant
is operating far below capacity, because
the worker is already fearful of something
less than full employment. If a reasonable
days work is being received for the going
rate of pay, postponement of the incentive
plan is indicated. However, there is a nat-
ural tendency for workers to reduce output
during such periods, thereby increasing
costs, with a tendency to bring about fur-
ther reduction in the volume that can be
sold. With full explanation and under-
standing of the situation, the incentive
wage could be introduced with a plant
operating at 60% capacity.
Q11-8. In the straight piecework plan, each worker is
paid a certain amount for each unit produced,
while being guaranteed a base hourly wage.
In the 100% bonus plan, each worker is paid
for the standard time to complete the job or
units if the job or units are finished in standard
time or less. In the group bonus plan, workers
in a group are paid their standard hourly
wage. If the group produces units in excess of
the standard, the workers are paid for the time
saved.
11-2 Chapter 11
Q11-9. An organizational or gainsharing incentive
plan is designed to provide incentive pay to all
employees by way of an organization-wide
plan that rewards for improved productivity.
Q11-10. The basic concept underlying the relation-
ship involved in the cumulative average time
learning curve model is that every time the
cumulative quantity of units produced is dou-
bled, the cumulative average time per unit is
reduced by a given percentage.
Q11-11. The learning curve theory is used to solve
problems such as determining labor costs in
bids for government contracts, determining
lot costs for various stages of production
runs, predicting labor-hour requirements,
permitting the calculations of standard labor
cost variances, assisting in the evaluation of
a managers performance, and providing a
basis for cost control.
Q11-12. The financial accounting aspect is concerned
with a record of earnings of each employee
and payment of the workers. Financial
accounting records income, FICA, and other
payroll taxes and deductions withheld; pro-
vides for disbursing funds to workers and to
taxing and other agencies; reports to each
employee at least annually the amount of
wages earned and the amounts withheld for
various purposes; and records the payroll
liability and payment each payroll period.
The cost accounting aspect is concerned
with time worked on each job or in each cost
center, in order to determine the labor hours
and labor cost of production.
Q11-13. An efficient labor force begins with the
design of the product and an analysis of pro-
duction techniques and job requirements.
With the personnel department adequately
informed about job specifications, It is the
function of this department to secure the
personnel qualified to do each job. The pro-
duction planning department keeps the work
flowing smoothly. The timekeeping, payroll,
and cost accounting departments contribute
to the total efficiency by accounting for the
time purchased and by making payment for
the work as well as charging the cost to the
proper department and product.
Q11-14. (a) Determining labor hours worked by
each employee is primarily for payroll
purposes and financial accounting.
(b) Determination of labor hours consumed
on each job or in a department is a part
of cost determination for a job or
process. It should also be a measure of
labor efficiency, since hours consumed
and productive output can be compared.
Q11-15. (a) The clock card shows the amount of
time an employee spent in the plant
each day of a payroll period. It is evi-
dence that the employees time has
been purchased.
(b) The time ticket shows the amount of
time an employee spends each day on
each job or in each department. It is an
itemized invoice of the time that the
employee sells to the employer.
Q11-16. Since the clock cards show the time employ-
ees are in the plant, the first step is to make
sure no error exists on the time tickets. If the
total time shown on the time tickets is cor-
rect, then the workers spent time in the plant
when not working or not assigned to specific
jobs or departments, or when assigned to
maintenance or repair work For the time that
is idle or assigned to indirect labor, a charge
is made to Factory Overhead.
Q11-17. Bar codes are symbols that can be processed
electronically to identify numbers, letters, or
special characters. Bar-coded employee
identification cards or badges, and task
identifications can be used to replace clock
cards and time tickets to collect payroll data
and to measure worker activity.
Q11-18. Appendix One method would be to charge
the premium costs directly to the
products in the same manner as
straight-time labor costs. This
would be appropriate when partic-
ular jobs have to be rushed to
completion. A second method
would be to treat the premium as
an overhead element to be
charged to all production through
the allocation of overhead. It
would be appropriate when the
overtime is a recurring condition
normally incident to the level of
operations.
Q11-19. Appendix The bonus and vacation pay
should be accrued over the bene-
fited time period. When the bonus
Chapter 11 11-3
and vacation pay are paid, the
accrued liability account is debited
and the cash and withholding
accounts are credited.
Q11-20. Appendix The recommended method in
computing costs under a pension
plan is to determine actuarially
the eventual pension payments to
covered employees and to charge
these future payments as a cost
of current production over the
expected period of active service of
covered employees. Costs based
on past services should be written
off over some reasonable period
on a systematic and rational basis
that does not distort the operating
results of any one year. These
costs are incurred in contempla-
tion of the present and future serv-
ices not only of the individual
employee, but also of the organi-
zation as a whole. Benefits of the
plansuch as improved morale,
removal of superannuated employ-
ees, and attraction of more desir-
able personnelare expected to
improve the operating efficiency of
a company.
EXERCISES
E11-1
ORANGE CITY CANNING COMPANY
Labor Schedule for Jaime Vasquez
For First Week in June
Hours worked .................................................................................. 40
Units produced................................................................................ 1,440
Standard production (40 30) ...................................................... 1,200
Efficiency ratio (1,440 1,200) .................................................. ... 120%
Base wage .................................................................................. .... $ 9
Weekly earnings ($9 40 120%)................................................. $ 432
Effective hourly rate ($432 40) ................................................... $10.80
Labor cost per unit ($432 1,440) ............................................. .. $ .30
E11-2
(1) Monday Tuesday Wednesday
Hours hourly rate............ ................... $64.00 $64.00 $64.00
Units above standard............................ 0 10 15
Hours saved........................................... .50 .75
Value of time saved .............................. $ 4.00 $ 6.00
80% of value of time saved.................. $ 3.20 $ 4.80
Earnings ................................................ $64.00 $67.20 $68.80 $200.00
(2) Efficiency ratio: = 107.5%
Earnings: 107.5% $8 hourly rate 40 hours = $344
(3) Earnings: ($8 hourly rate + 5% rate increase) 24 hours =
$8.40 24 hours = $201.60
11-4 Chapter 11
860
800
Chapter 11 11-5
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E11-5
20A productivity ratio =
20A standard hours for work done
20A total actual direct and indirect labor hours =
643,823 1,525,324 = .422089
Hours needed for 20B production at 20A productivity ratio =
20B standard hours for work done 20A productivity ratio =
558,510 .422089 .............................................................................. 1,323,204
Less 20B total actual direct and indirect labor hours.................... 1,284,983
Hours saved ....................................................................................... 38,221
Value of wages saved = hours saved 20B
average hourly pay plus labor fringe benefits =
38,221 $14.70 = $561,849
Employee gainsharing incentive total =
value of wages saved 50% =
$561,849 50% = $280,924.50
Gainsharing incentive per employee =
total gainsharing incentive number
of eligible employees =
$280,924.50 755 employees = $372.09
E11-6 1 batch ............................................................. $60,000
2 batches ............................................................ $48,000 (80% of $60,000)
4 batches ............................................................ $38,400 (80% of $48,000)
8 batches ............................................................ $30,720 (80% of $38,400)
16 batches ............................................................ $24,576 (80% of $30,720)
E11-7
Bridge Cumulative Average
Number Required Weeks per Bridge
1 100
2 80 (100 weeks 80%)
4 64 (80 weeks 80%)
8 51.2(64 weeks 80%)
7 additional bridges must be built in order to bring the cumulative average below 52
weeks.
11-6 Chapter 11
Chapter 11 11-7
E11-8
(1) The schedule below demonstrates the 80% learning curve that the company
expects to experience in producing the time devices:
Cumulative
Cumulative Average Cumulative
Lots Time = Time
1 90.00 hours 90.00 hours
2 72.00 144.00
4 57.60 230.40
8 46.08 368.64
At an 80% learning factor, the cumulative time to produce 8 lots should be
368.64 hours. At a standard labor rate of $9 per direct labor hour, the standard
amount for total direct labor cost should be set at $3,317.76 (368.64 $9).
(2) The company should establish the standard for direct labor time equal to the
marginal direct labor time required to produce the eighth lot, providing steady-
state production occurs after the eighth lot. To assure that this standard time
will be accurate, the company should:
(a) Keep accurate records through the first 8 lots to determine if an 80% learn-
ing factor is experienced.
(b) Continue to keep accurate records for each successive production lot to
provide a basis for:
1. Conformance to expectations about labor time (i.e., steady state pro-
duction after 8 lots), or
2. Determining when steady-state production does occur.
E11-9 APPENDIX
(1) Overtime premium charged to production worked on during the overtime
hours:
Work in Process............................................................... 441
Payroll (40 hours $9) + (6 hours 1.5 $9) ...... 441
(2) Overtime premium charged to factory overhead:
Work in Process (46 hours $9) ................................... 414
Factory Overhead Control (6 hours .5 $9) ........... .. 27
Payroll ...................................................................... 441
E11-10 APPENDIX
Subsidiary
Record Dr. Cr.
Factory Overhead Control ................................ 201.60
Bonus Pay ........................................ 134.40
1
Vacation Pay .................................... 67.20
2
Liability for Bonus .................................... 134.40
Liability for Vacation Pay ........................ 67.20
1
($10 + $32) 40 hours 4 weeks = $6,720 50 weeks = $134.40
2
($10 + $32) 40 hours 2 weeks = $3,360 50 weeks = 67.20
E11-11 APPENDIX
Factory Overhead Control ($35,000 28%) ............... 9,800
Marketing Expenses Control ($8,000 28%) ............. 2,240
Administrative Expenses Control ($7,000 28%) ..... 1,960
Liability for Pensions ($50,000 7.8%) ............ 3,900
Liability for Other Postretirement Benefits
($50,000 2.3%) ............................................ 1,150
FICA Tax Payable ($50,000 7.5%) ................... 3,750
Federal Unemployment Tax Payable
($50,000 .8%) .............................................. 400
State Unemployment Tax Payable
($50,000 4.6%) ............................................ 2,300
Workers Compensation Insurance Payable
($50,000 1%)................................................ 500
Medical Insurance Payable ($50,000 4%) ....... 2,000
CGA-Canada (Adapted). Reprint with permission.
E11-12 APPENDIX
(1) The entry to record the payroll liability:
Payroll ............................................................................ 26,700.00
Employees Federal Income Tax Payable ........... 2,500.00
Employees State Income Tax Payable ............... 500.00
Employees City Wage Tax Payable ................... 267.00
FICA Tax Payable ................................................. 2,002.50
Accrued Payroll ................................................... 21,430.50
(2) The entry to distribute the payroll:
Work in Process............................................................ 18,000.00
Factory Overhead Control ........................................... 3,000.00
Marketing Expenses Control ....................................... 4,200.00
Administrative Expenses Control ............................... 1,500.00
Payroll .................................................................. 26,700.00
11-8 Chapter 11
Chapter 11 11-9
E11-12 APPENDIX (Concluded)
(3) The entry to record the employers payroll taxes:
Factory Overhead Control .......................................... 2,394.00
Marketing Expenses Control ....................................... 478.80
Administrative Expenses Control .............................. 171.00
FICA Tax Payable ................................................. 2,002.50
State Unemployment Tax Payable ..................... 854.40
Federal Unemployment Tax Payable.................. 186.90
PROBLEMS
P11-1
(1) Present cost:
Direct labor per hour.................................................... $10
Factory overhead per direct labor hour ..................... 12
$ 22 5 units per hour =
$4.40 conversion cost
per unit
Per Worker per 8-Hour Day
Units Assembled Piecework Direct Factory Total Conversion Conversion Cost
per 8-Hour Day Rate Labor Overhead Cost per Unit
40 $2.00 $ 80.00 $96.00 $176.00 $4.40
45 2.12 95.40 96.00 191.40 4.25
50 2.20 110.00 96.00 206.00 4.12
55 2.30 126.50 96.00 222.50 4.05
60 2.40 144.00 96.00 240.00 4.00
(2) If a production rate above 40 units per employee per 8-hour day is reasonably
attainable by the worker, the employee earnings will increase under the piece-
work proposal. Since conversion cost per unit decreases with increased output,
management should favor the piecework proposal.
P11-2
(1)
Regular Workweek Incentive Wage Plan
Total Incentive Pay Total
Hourly Work- Labor Base Pay (Units Produced Labor
Employee Rate Week Cost (Base Rate Work Hours) + Incentive Premium) = Cost
Clancy, D.... $6.00 40 hrs. = $240 $3.50 40 hrs. = $140 165 $1.00 = $165 $ 305
Luken, T ..... 8.00 40 hrs. = 320 5.50 40 hrs. = 220 165 1.00 = 165 385
Schott, J..... 7.00 40 hrs. = 280 4.50 40 hrs. = 180 165 1.00 = 165 345
Total direct labor ............. $840 Total direct labor....................................................... $1,035
$1,035 $840 = $195 labor cost increase Proof: = 23.2% labor cost increase
$
$
195
840
11-10 Chapter 11
Chapter 11 11-11
P11-2 (Concluded)
(2) To assess properly the effectiveness of the new plan, it is necessary to ana-
lyze its effect on conversion costs and not just on direct labor costs.
Although direct labor cost per unit may rise, this increase may be more than
offset by distributing the overhead over a larger volume.
A comparison of the two pay plans and their effects on conversion cost per
unit shows:
Total Labor Total Total Unit
Labor Cost Factory Overhead Conversion Conversion
Cost per Unit Overhead per Unit Cost Cost
Incentive wage plan $1,035 $6.27 $1,200 $ 7.27 $2,235 $13.55
1
Straight hourly rate 840 5.60 1,200 8.00 2,040 13.60
2
Difference ............... $ .67 $ (.73) $ (.05) net
decrease
1
$2,235 165 = $13.55
2
$2,040 150 = $13.60
The decrease in conversion cost is minimal; however, the fact that customers
can be served sooner might be worth additional labor cost. Based on learning
curve theory, the productivity of the worker might increase sufficiently to
reach a more satisfactory output and cost level.
11-12 Chapter 11
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Chapter 11 11-13
P11-3 (Concluded)
(3) Hours worked ............................................................... 40
Units produced ............................................................ 855
Standard production (20 units 40 hours) ............... 800
Efficiency ratio (855 800) ......................................... 1.06875
Base wage per hour ..................................................... $9.00
Base wage plus bonus (1.06875 $9)........................ $9.61875
Weekly earnings ($9.61875 40 hours)...................... $ 384.75
Unit cost ($384.75 855 units) ................................... $ .45
11-14 Chapter 11
P
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Chapter 11 11-15
P11-5
Straight Piecework
Dodd Hare Lowe
Units producedregular time ......................... 400 410 370
Piecework rate.................................................... $ .66 $ .66 $ .66
Piecework pay.................................................... $264.00 $270.60 $244.20
Downtime pay..................................................... 30.00 0 24.00
Overtime pay...................................................... 0 54.00
1
36.00
Total wages ........................................................ $294.00 $324.60 $304.20
Wages per books............................................... 284.00 277.20 302.20
Underpayment ................................................... $ 10.00 $ 47.40 $ 2.00
1
6 $6 150% = $54
Percentage Bonus Plan
Ober Rupp
Units produced................................................................ 250 180
Standard production........................................................ 200 200
Efficiency ratio ................................................................ 125% 90%
Regular wages................................................................. $240.00 $200.00
Bonus ............................................................................. 60.00
1
0
......................................................................
Total wages ..................................................................... $300.00 $200.00
Wages per books............................................................. 280.00 171.00
......................................................................
Underpayment................................................................. $ 20.00 $ 29.00
......................................................................
1
25% premium $240 regular wage = $60
or $6.00 hourly rate
.25 premium
$1.50 bonus pay
$1.50 40 hours = $60
11-16 Chapter 11
P11-5 (Concluded)
Emerson Efficiency System
Suggs Ward
Units produced ............................................................. 240 590
Standard production ................................................... 300 570
1
Efficiency ratio.............................................................. 80% 103.5%
Bonus rate .................................................................... 20% 45%
Regular wage ................................................................ $224.00
2
$212.80
3
Bonus wage ................................................................. $ 44.80 95.76
Downtime pay (2 hours $5.60) ................................. 11.20
Total wages ................................................................... $268.80 $319.76
Wages per books.......................................................... 233.20 280.00
Underpayment............................................................... $ 35.60 $ 39.76
1
= 15 units per hour
15 units per hour 38 productive hours = 570 units (standard production for 38
hours)
2
40 hours $5.60 = $224.00
3
38 hours $5.60 = $212.80
P11-6
(1) Hours worked (5 workers 40 hours) ........................ 200
Regular wage (200 hours $6) ................................... $ 1,200
Units produced ............................................................. 452
Bonus............................................................................. $52*
Weekly earnings ........................................................... $ 1,252
Unit labor cost ($1,252 452) ..................................... $2.7699
Unit factory overhead ($1,400 452).......................... $3.0973
Unit conversion cost ................................................... $5.8672
*452 units produced
400 units standard
52 units above standard
52 units $1 workers share = $52 bonus
600 40
40
units st dard production for hours
hours
( an )
Chapter 11 11-17
P11-6 (Concluded)
(2)
Monday Tuesday Wednesday Thursday Friday Total
Units..................... 72 81 95 102 102 452
Standard hours
for units ............... 36
1
40 1/2 47 1/2 51 51 226
Actual hours........ 40 40 40 40 40 200
Bonus, $6
hours saved......... $ 3 $ 45 $ 66 $ 66 $ 180
2
Total earnings ..... $ 240 $ 243 $ 285 $ 306 $ 306 $ 1,380
Unit labor cost .... $3.3333 $3.0000 $3.0000 $3.0000 $3.0000 $3.0531
Unit factory
overhead ............. $3.8889 $3.4568 $2.9474 $2.7451 $2.7451 $3.0973
Unit conversion
cost ...................... $7.2222 $6.4568 $5.9474 $5.7451 $5.7451 $6.1504
1
400 units per 40 hours = 10 units per hour
10 units per hour 5 workers = 2 units per hour
72 units produced 2 units per hour = 36 hours standard time
2
If the group bonus is computed for the week, rather than daily, the bonus would be $6 26 hours
saved, or $156. Then, $1,356 452 units = $3 unit labor cost. Overhead cost would be $1,400 452
units, or $3.0973 per unit.
P11-7
(1) THOMAS INC.
Quarterly Bonus Allotment
At End of March
Points
Employees Allowed for Total Share Total
Participating Each Employee Points per Point Share
1 Works manager ................. 250 250 $3.125* $ 781.25
2 Production engineers........ 200 400 3.125 1,250.00
5 Shop supervisors............... 200 1,000 3.125 3,125.00
1 Storekeeper ........................ 100 100 3.125 312.50
5 Factory office clerks ......... 10 50 3.125 156.25
150 Factory workers ............ 20 3,000 3.125 9,375.00
4,800 $15,000.00
* 270,000 units actual production
240,000 units normal production
30,000 units excess over normal
30,000 units $.50 = $15,000
$15,000 4,800 points = $3.125 per point
P11-7 (Concluded)
(2) At the end of January no entry is required, since production was below 1/3 of
240,000 units, or 80,000 units. The deficiency was 5,000 units (80,000 75,000).
At the end of February, the entry is:
Subsidiary
Record Dr. Cr.
Factory Overhead Control ................................ 4,500*
Bonus Pay ........................................ 4,500
Liability for Bonus .................................... 4,500
*Excess units (94,000 80,000) 14,000 units
Less January deficit .......................5,000
Net excess .......................................9,000 units
9,000 $.50 = $4,500
At the end of March, the entry is:
Factory Overhead Control ................................ 10,500*
Bonus Pay ........................................ 10,500
Liability for Bonus .................................... 10,500
*101,000 units 80,000 units = 21,000 excess units
21,000 units $.50 = $10,500.
11-18 Chapter 11
P11-8
(1)
Cumulative Cumulative Time in Hours
Number Number of Units Cumulative
of Lots (Lot Size = 50) Average Time Per Unit Cumulative Time
1 50 4.0000
2 100 3.6000 (4.0000 .9) 360.00 (3.6000 100)
4 200 3.2400 (3.6000 .9) 648.00 (3.2400 200)
8 400 2.9160 (3.2400 .9) 1,166.40 (2.9160 400)
16 800 2.6244 (2.9160 .9) 2,099.52 (2.6244 800)
Direct labor hours required to produce the first 800 units ................... 2,099.52
Direct labor hours required to produce the first 200 units ................... 648.00
Direct labor hours required to produce the next order ......................... 1,451.52
Number of units in the next order ........................................................... 600
Direct labor hours per unit for the next order (1,451.52 600) ............ 2.4192
Catonic Part Number PCB-31
Unit Costs and Prices for Rex Engineering Company
Estimates
Incorporating
a 90% Learning
Curve
Materials........................................................................ $180.00
Labor and employee benefits (2.419 $20) ............... 48.38
Variable overhead (50% of labor)................................ 24.19
Total variable cost ................................................. $252.57
Fixed overhead ............................................................ 40.00
Full cost................................................................... $292.57
Profit contribution (10% of full cost) ......................... 29.26
Estimated contract price ....................................... $321.83
(2) The implications of an 80% learning curve as opposed to a 90% learning curve
are:
(a) An 80% learning curve indicates a greater effect of experience on efficiency.
(b) Most of the increase in efficiency (decrease in time and cost per unit) due to
an 80% learning curve occurs early in the production run; thus, saturation in
learning is achieved earlier with an 80% learning curve.
Chapter 11 11-19
P11-8 (Concluded)
(3) The degree of learning that takes place in an industrial operation would be
reduced by:
(a) a low proportion of assembly labor to machine labor;
(b) an operation of low complexity;
(c) high employee turnover;
(d) tedium;
(e) poor working conditions.
P11-9 APPENDIX
(1) Charge to work-in-process:
Normal working hours = 40 hours 2 = 80 hours
Let X = overtime hours
X =
X = 10 hours
Therefore, charge to work in process = 90 $12 = $1,080
(2) Factory overhead charge for Employee #1071:
Company benefits paid by employer.......... $273.20
Overtime premium ....................................... 60.00 ($1,140 $1,080)
$333.20
(3) The cost of idleness should be charged to the departmental factory overhead
account.
P11-10 APPENDIX
(1) Apr. 7 Payroll............................................... 5,890.00
Accrued Payroll ............................. 4,888.70
Employees Income Tax Payable (9.5%) 559.55
FICA Tax Payable (7.5%) ............... 441.75
14 Payroll............................................... 4,920.00
Accrued Payroll ............................. 4,083.60
Employees Income Tax Payable... 467.40
FICA Tax Payable .......................... 369.00
21 Payroll............................................... 5,900.00
Accrued Payroll ............................. 4,897.00
Employees Income Tax Payable... 560.50
FICA Tax Payable........................... 442.50
28 Payroll............................................... 4,880.00
Accrued Payroll ............................. 4,050.40
Employees Income Tax Payable .. 463.60
FICA Tax Payable .......................... 366.00
11-20 Chapter 11
$ . ( $ )
($ . )
1 140 80 12
12 1 5
= = learning rate
C11-4
Shortcomings:
(1) Actual payroll hours are not approved by production management.
(2) There is inadequate segregation of duties within the Payroll Department.
(3) Personnel Department should not have access to payroll checks.
(4) Department supervisors should not distribute the payroll checks.
Suggested corrective action:
(1) All incoming time cards should be signed by both the employee and supervisor.
(2) The payroll clerk preparing the input for data processing should not do the rec-
onciling, but rather a second clerk should reconcile the payroll journal to the
time cards.
(3) An employee of supervisory level should authorize voiding of computer-
generated checks and the subsequent preparation of a manual replacement
check.
(4) Replacement checks should be processed following good internal control
procedures.
(5) All payroll checks, including unsigned replacement checks, should then be
given to the Accounting Department rather than to the Personnel Department
for storage in a secure location until payday. No Accounting Department
employee with payroll record-keeping responsibility should have access to the
undistributed checks.
(6) On payday, checks should be distributed, preferably by a Treasurers
Department employee or by an Accounting Department employee who does not
have record-keeping responsibilities.
C11-5
(The requirement does not ask for a list of responsibilities Osborne has violated,
but, merely, which of the fifteen responsibilities apply to Osbornes situation.)
Management accountants have a responsibility to:
Competence: Prepare complete and clear reports and recommendations
after appropriate analyses of relevant and reliable information. (Osborne knows
that if he consents to Wallaces request, the resulting maintenance job cost
reports would be materially misstated and would present false and misleading
information.)
Integrity: Refrain from engaging in any activity that would prejudice their
ability to carry out their duties ethically. (Osborne is being asked to be a party
to an activity that would erode his ability to carry out his duties ethically.)
Communicate unfavorable as well as favorable information and pro-
fessional judgments or opinions. (Osborne is being asked to thwart com-
munication of unfavorable information.)
11-26 Chapter 11
11-5 (Concluded)
Refrain from engaging in or supporting any activity that would discredit
the profession. (Preparing deliberately misleading maintenance job cost
reports clearly would be a discredit to the profession.)
Objectivity: Communicate information fairly and objectively. (Osborne
would violate this responsibility if the maintenance job cost reports are
altered.)
Disclose fully all relevant information that could reasonably be expected
to influence an intended users understanding of the reports, comments, and
recommendations presented. (The shifting of cost among maintenance jobs
would violate this ethical responsibility.)
Chapter 11 11-27