Solution manual cost accounting by carter 14e ch11

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.. Assuming that the incentive wage plan resul

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 Producproduc-tivity 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

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.

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 manager’s 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 employee’s 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 fited time period When the bonus

bene-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 plan—such as improved morale, removal of superannuated employ- ees, and attraction of more desir- able personnel—are expected to improve the operating efficiency of

a company.

ORANGE CITY CANNING COMPANY Labor Schedule for Jaime Vasquez

For First Week in June

Effective hourly rate ($432 ÷ 40) $10.80

Labor cost per unit ($432 ÷ 1,440) $ 30

E11-2

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

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

860 800

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

(1) The schedule below demonstrates the 80% learning curve that the company

expects to experience in producing the time devices:

Cumulative Cumulative Average Cumulative

(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 state production occurs after the eighth lot To assure that this standard time will be accurate, the company should:

steady-(a) Keep accurate records through the first 8 lots to determine if an 80% ing factor is experienced.

learn-(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 duction after 8 lots), or

pro-2 Determining when steady-state production does occur.

Work in Process (46 hours × $9) 414

Factory Overhead Control (6 hours × 5 × $9) 27

Payroll 441

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

CGA-Canada (Adapted) Reprint with permission.

E11-12 APPENDIX

(1) The entry to record the payroll liability:

Payroll 26,700.00

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

E11-12 APPENDIX (Concluded)

(3) The entry to record the employer’s 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

(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

P11-2

(1)

Regular Workweek Incentive Wage Plan

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

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:

Labor Cost Factory Overhead Conversion Conversion

Incentive wage plan $1,035 $6.27 $1,200 $ 7.27 $2,235 $13.55 1

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

Straight Piecework

Units produced—regular 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

P11-5 (Concluded)

Emerson Efficiency System

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

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.

* 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