CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses
Kapoor Fabrics has a skilled workman who produces 120 units in a 50-hour week. The standard output is 2 units per hour. He is paid under the Rowan plan at Rs. 60 per hour, with the standard time for the 120 units being 60 hours. His time taken is 50 hours. What is the total earning for the week under the Rowan plan?
Total earning is Rs. 3,500. Time wages are 50 hours at Rs. 60, which is Rs. 3,000. Under the Rowan plan the bonus is time saved over standard time multiplied by time taken and the rate, which is 10/60 x 50 x 60, or Rs. 500. Adding gives Rs. 3,500.
- ARs. 3,500Correct
- BRs. 3,250
- CRs. 3,000
- DRs. 3,600
Explanation
Standard time = 120/2 = 60 hours; time taken = 50; time saved = 10. Time wages = 50 x 60 = 3,000. Rowan bonus = (time saved / standard time) x time taken x rate = (10/60) x 50 x 60 = 500. Total = 3,500. Rs. 3,600 is the amount paid for the 60 standard hours, which is the wrong base, ignoring the Rowan bonus formula.
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