The disadvantages of these schemes are as follows. a) The benefits are not certain, as the market value of shares at a future date cannot realistically be predicted in advance. b) The benefits are not immediate, as a scheme must be in existence for a number of years before members can exercise their rights.
2.4.4.2 Value added incentive schemes Value added
= sales - cost of bought-in materials and services
The advantage of value added over profit as the basis for an incentive scheme is that it excludes any bought-in costs, and is affected only by costs incurred internally, such as labor.
Example:
Swetton Tyres Co manufactures a single product. Its work force consists of 10 employees, who work a 36-hour week exclusive of lunch and tea breaks. The standard time required to make one unit of the product is two hours, but the current efficiency ratio
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(or productivity) being achieved is 80%. No overtime is worked, and the work force is paid $4 per attendance hour.
Because of agreements with the work force about work procedures, there is some unavoidable idle time due to bottlenecks in production, and about 4 hours per week per person are lost in this way.
The company can sell all the output it manufactures, and makes a 'cash profit' of $20 per unit sold, deducting currently achievable costs of production but before deducting labour costs.
An incentive scheme is proposed whereby the work force would be paid $5 per hour in exchange for agreeing to new work procedures that would reduce idle time per employee per week to 2 hours and also raise the efficiency ratio to 90%. Required:
Evaluate the incentive scheme from the point of view of profitability.
[2006-Dec-SectionA-11] A jobbing company operates a
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premium bonus scheme for its employees of 75% of the time saved compared with the standard time allowance for a job, at the normal hourly rate. The data relating to Job 1206 completed by an employee is as follows:
Allowed time for Job 1206 4 hours Time taken to complete 3 hours Job 1206 Normal hourly rate of pay $8 What is the total pay of the employee for Job 1206? A. 24 B. 30 C. 32 D. 38
Answer: B
3. Recording labour costs 3.1 Personnel department
Responsibilities
a) Engagement, transfer and discharge of employees. b) Classification and method of remuneration.
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c) Prepare personnel record card d) Maintain records of overtime and shift working. e) Issuing reports to management on normal and overtime hours worked, absenteeism and sickness, lateness, labour turnover and disciplinary action.
3.2 Production planning department
This department is responsible for the following. a) Scheduling work b) Issuing job orders to production departments c) Chasing up jobs when they run late
3.3 Timekeeping department
The timekeeping department is responsible recording the attendance time and job time of following.
a) The time spent in the factory by each worker b) The time spent by each worker on each job
The relevant use of this information P148
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for the
3.3.1 Attendance time
Time of absence/arrival/breaks/departure should be included in an attendance record.
3.3.2 Job time
When the work is not repetitive, the following records are required.
a) Daily time sheets b) Weekly time sheets c) Job cards d) Piecework ticket/Operation card
3.3.3 Idle time
The idle time ratio is useful because it shows the proportion of available hours which were lost as a result of idle time.
Idle time ratio=idle time÷total time
Clock cards
These record the time of arrival, time of breaks and
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