International Islamic Department of Business

Administration
University Chittagong
Introduction to Cost and management Accounting
(Go through the reference books for details)
Cost Accounting:
Cost Accounting is a quantitative method that accumulates, classifies, summarizes and interprets
financial and non-financial information.
Cost accounting means determining the cost of producing specific products or services.
Previously cost accounting was considered as a technique for the ascertainment of cost of
products or services. Due to the competitive nature of the market or business, ascertaining of
cost is not so important or material than controlling cost. i.e. in this stage , cost accounting
means determining the product cost and control them. But due to the technological
developments in all fields, cost reduction has also come within the ambit of cost accounting.

According to Horngren, Cost accounting is a quantitative method that accumulates, classifies,

summarizes and interprets information for the following three major purposes:

 Ascertainment of cost of a product or service

 Operational planning and control and
 Decision making.
So cost accounting is an information system of recording, classifying and summarizing
cost for determining the cost of products or services, planning, controlling and reducing
such costs and furnishing of information to management for decision making.

Objectives of Cost Accounting:

 To collect, record, classify and prepare & present cost information to the internal user.
 Determination of cost per unit and total for a specific products or services.
 To assess the profit and sales for the period.
 Cost control
 Cost reduction
 Keep the cost statement properly
 To measure the efficiency
 Helps make the right decision and to conduct business organization smoothly and
efficiently
 Planning and budgeting of an organization
 Analysis of Cost

The Role of Cost Accounting

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Cost accounting furnishes management with the necessary accounting tolls for planning and
controlling activities. Specifically, the collection, presentation, and analysis of cost data should
help management accomplish the following tasks:
1. Creating and executing plans and budgets for operating under expected competitive and
economic conditions.
2. Establishing costing methods and procedures that permit control and, if possible,
reductions or improvements of costs.
3. Creating inventory values for costing and pricing purposes and, at times, controlling
physical quantities.
4. Determining company costs and profit for and annual accounting period.
5. Choosing from among two or more alternatives which might increase revenues or
decrease costs.

Financial Accounting vs. Cost Accounting

Financial accounting is concerned with providing information to external users. But cost
accounting is prepared for the internal users. Financial accounting is oriented towards the
preparation of financial statements which summarize the results of operations for selected
periods of time and show the financial position of the business at particular dates. Cost
accounting often provides detailed information about manufacturing or rendering particular
product or service. Financial accounting prepares report according to GAAP as a mandatory
obligation.
[Definition; Actual and Estimated; Valuation of Stock; User; GAAP; Flexibility; Total and
Segmented profit; Prescribed form; Using data, and Preparation time]

Methods of Costing:
The major methods are:
i) Job costing: job costing, batch costing and contract costing
ii) Process costing: process costing, operating costing, operation costing&
unit costing and
iii) Farm costing
Techniques of Costing:
The major Techniques are:
i) Absorption costing
ii) Standard costing
iii) Variable/Marginal costing
iv) Uniform costing
v) Target costing

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 Classification of Cost : General

Manufacturing Costs

Direct Materials Direct Labor Manufacturing overhead

Prime Cost Conversion Cost

Non-Manufacturing Costs
.

Marketing or Selling Costs Administrative Costs

Direct materials:
Those materials that become an integral part of a finished product and can be conveniently
traced into it.
Direct Labor:
Those factory labor costs that can be easily traced to individual units of product.
Manufacturing Overhead:
All costs associated with manufacturing except direct materials and direct labor.
Marketing or Selling Costs:
All costs necessary to secure customer orders and get the finished product or service into the
hands of the customer.
Administrative Costs:
All executive, organizational and clerical costs associated with the general management of an
organization rather than with manufacturing, marketing or selling.

Product costs versus period costs:

Product Cost:
All costs which are involved in the purchase or manufacture of goods.
Period Costs:
Those costs that are taken directly to the income statement as expense in the period in which
they are incurred or accrued such costs consist of selling (Marketing) and administrative
expenses.
1) Cost Classifications for Predicting Cost Behavior:
i. Variable cost

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 ii. Fixed cost
Variable Cost:
Variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity.
Fixed Cost:
Fixed cost is a cost that remains constant, in total, regardless of changes in the level of activities
within the relevant range.
2) Cost classifications for assigning costs to cost objective:
i. Direct cost.
ii. Indirect cost.
Direct Cost:
Direct cost is a cost that can be easily and conveniently traced to the particular cost object-under
consideration.
Indirect Cost:
A cost that can not be easily and conveniently traced to the particular cost object under
consideration.

3) Cost Classifications for Decision Making:

i. Opportunity cost
ii. Sunk cost.

Opportunity Cost:
Opportunity cost is the potential benefit that may be obtained from the following best
alternatives i.e. the potential benefit that is given up when one alternative is selected over
another.
Sunk Cost:
Any cost that has already been incurred and that can not be charged by any decision make now
or in the future.
Responsibility Center
Cost Center:
A cost center incurs costs but does not directly generate revenues.
Profit center:
A Profit center incurs costs and also generates revenues.
Investment center:
An investment center incurs costs and generates revenues and has control over the investment
funds available for use.

Specimen of Cost Sheet

Cost Sheet for the period of -----------

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 Production of -----------Units

Tk. Tk.
Direct Materials:
Opening Stock of raw materials
Add. Purchases
Add. Carriage inward
Less Return to suppliers
Less. Scrap/ abnormal loss of raw materials
Materials available for use
Less. Closing stock
Less Indirect materials used
Direct material consumed xxx
Direct Wages: xxx
(Wages paid+ Due wages-Advanced payment)
Direct Expense xxx
Prime Cost XXX
Add. Factory overheads:
Indirect materials
Loose tools
Indirect wages
Rent and rates (Factory)
Lighting and heating
Power and fuel
Repairs and maintenance
Cleaning
Drawing office expenses
Cost of research and experiments
Depreciation of factory plant
Works stationary
Welfare services expenses
Insurance expenses
Insurance-Fixed assets etc.
Insurance-Stock and finished goods
Works manager’s salaries/payroll
General factory overhead
Total factory overhead ****
Total manufacturing cost XXX
Add. Opening Work-in process
Less. sale of scraps
Less. Closing work-in process
Cost of goods manufactured/ Factory/ Works cost XXX
Cost of Production XXX
Add. Opening finished goods
Cost of goods available for sale
Less. Closing finished goods
Cost of goods sold
Add. Office and Administrative Overheads:
Rent and rates (office)
Salaries (office)
Lighting and heating
Insurance of office building and equipment etc.

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 Telephone and postages
Printing and stationary
Depreciation of furniture and office equipment buildings
Legal expenses
Audit fees
Bank charges
Add. Selling and Distribution Overheads
Showroom rent and rates
Lighting and heating
Salesmen’s salaries
Commissions
Traveling expenses of salesman
Sales printing stationary
Advertising
Bad debts
Postage
Depreciation and expenses
Carriage freight outwards
Samples and other free gifts
Cost of Sales XXX
Net Profit XXX
Sales Price

Illustration
Cost Sheet
31st December 2005
Particulars Tk. Tk.
Direct Material 32,000
Direct wages 25,000
Direct Expenses 6,500
Prime Cost 63,500
Factory Overhead/Factory Expenses or Works Expenses:
Factory Rent 500
Factor Repair 200
Factory Insurance 400
Salary of Factory Employees 2,400
Factory fuel and Electricity Bill 300
Depreciation of Machinery 500
Material Purchase cost 300
Other cost of Factory 400
5,000
Total Works Cost /Manufacturing Cost 68,500
Add. Opening Work in Progress 2,600
71,100
Less. Closing Work in Progress 1,600

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 Cost of Goods manufactured /Production Cost 69,500
Add. Opening Stock of Finished Goods 6,300
75,800
Less. Closing Stock of Finished Goods 9,400
Cost of Goods Sold 66,400
Office and Administrative Expenses
Director’s Salary 6000
Office Employee’s Salary 1500
Rent of Office 300
Electricity Bill of Office 300
Telephone Bill of office 200
Stationary 600
Other expenses of office 300 9200
75,600
Selling and Distribution Expenses:
Salary of salesman 2000
Advertisement expenses 1500
Sales commission 1000
Showroom expense 300
Storage expense 200
Packaging expense 300
Sales discount 100
Carriage outward 500
Bad debt 400
Others selling cost 200 6500
Total Cost of Goods Sold 82,100
Profit 15900
Sales 98000

Example 1.
From the following particulars prepare a statement showing (a) Cost of materials used, (b) Prime
cost, (c) Works cost, (d) Total cost of goods sold and (e) Profit for the year ended 31 st December
2001:
Tk.
Stock of Raw Materials on 01-01-07 5,000
Stock of Finished Goods 01-01-07 9,000
Purchase of Raw Material s (less discount) 26,000
Direct Expenses 3,000
Direct Labor 18,500
Finished Goods Sold (less discount) 80,000
Stock of Raw Materials 31-12-07 3,500
Stock of Finished Goods 31-12-07 6,000
Factory Overhead-20% on Direct Labor cost
Administrative and Selling Overhead-10% each on works
Example 2.
The Records of the Sunshine Corporation show the following information for the six months
ended 30th June, 2008:

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 Raw materials used in production 18,000
Productive labor 11,000
Unproductive factory labor 5,000
Factory supplies 900
Sales salaries 3,000
Administrative salaries 6,000
Other factory expenses 2,600
Miscellaneous selling expenses 2,000
Sundry administrative expenses 1,500
Depreciation (75% Manufacturing, 15%
Administrative and 10% Selling expenses) 10,000
Goods completed and sold during the period 5,000 units. Sales price per unit tk. 16
Required :
(1) A statement showing the total cost of goods manufactured and profit earned.
(2) The sale price per unit for earning the same percentage of profit on sales for the same
volume of production in the Nest six months if the production cost in increased by 10%
and the selling expenses are reduced by 15%.

3. Information relating to production and sale of ‘CAREX’ is as follows:

Taka Taka
Direct materials 58,200 Depreciation of Plant 8,400
Direct expenses 3,200 Misc. factory expenses 9,600
Indirect materials 6,700 Office stationary 1,500
Direct wages 44,700 Sales commission 4,500
Power 4,900 Misc. office expenses 5,300
Wages of foremen 20,600 Misc. selling expenses 3,800
Salaries 24,900 Sales 2,10,000
Salaries are to be apportioned at 30% works, 50% office and the balance as sales.
Calculate cost of production, cost of goods sold and net profit.

4. The following information is obtained from a manufacturing concern for a year ended
31st December 2007

1st January 31st December

Inventories: Taka Taka
Raw materials 11,200 9,200
Work-in-progress 4,300 5,200
Finished Stock 7,400 9,100
Purchase of raw materials Tk. 1,24,000
Direct wages:
Department A-32,000 hours @Tk. 4
Department B-24,000 hours @Tk. 5

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 Factory overhead :
Fixed-Tk. 76,000
Variable-Tk. 1.75 per direct labor hour
Administrative expenses-7.5% of works cost
Selling expenses-60% of administrative expenses.
Net profit -20% of sales
Ascertain works cost, cost of goods finished, total cost of goods sold and sales.

5. The following cost and inventory data for the just completed year are taken from the
accounting records of Ruhan Company:
Advertising expense tk. 100,000
Sales discount tk.1,000
Purchase return tk.2,000
Return inwards tk. 1,500
Purchase discount tk.3,000
Bad debts tk.4,000
Insurance tk.10,000
Income tax tk.6,000
Fuel and power tk.14,000
Heat and light tk,3,200
Bond interest tk. 5,000
Direct Labor cost tk. 80,000
Rent factory building tk. 70,000
Purchase of raw materials tk. 130,000
Indirect Labor tk. 50,000
Interest on working capital tk 5,000
Sales Commission tk. 35,000
Utilities, factory tk. 9,000
Maintenance, factory equipment tk. 24,000
Supplies factory tk. 8000
Depreciation, office equipment tk. 9,000
Depreciation, factory equipment tk. 40,000
Selling and administration exp. tk. 20,000
Total sales for the year tk. 10,00,000
Inventories: Beginning of year End of year
Raw materials tk. 7,000 Tk. 8,000
Work-in-process tk. 6,000 tk. 10,000
Finished goods tk. 30,000 tk. 15,000
Insurance cost should be considered for factory, office & administration and selling &
distribution 40%; 30% and 30% respectively.
Required :
Prepare a cost statement and Income statement

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Materials
Inventory
Inventory means quantity of stock on hand which may be used to sale or further production.
Actually it is a combination of raw materials, work-in process and finished goods which is used
to sale or reproduction.
Inventory Accounting Systems:

Two inventory systems:

(a) Periodical Inventory System: Under a periodic system, the quantity of inventory on
hand is determined only periodically i.e. monthly, quarterly. This method provides for the
recording of purchases returns and purchase allowances on periodically. The value of the
inventory is determined by using an inventory pricing method –simple average, average
method FIFO and LIFO method
(b) Perpetual Inventory System: The perpetual inventory system requires a continuous
record of additions to or reductions in materials on a day to day basis. That is , all
purchases and sales of materials are recorded directly in the inventory account as they
occur. In a perpetual inventory system, an entry is made each time the inventory is
increased or decreased

Problems of inventory (Store Ledger)

Problem-1
Pravati Bread Factory had on 1/4/09 a stock of 750kg.of flour having a cost of Tk.3,750. There
were following purchases and issues during the month of May. Calculate the value of stock at
the end of the month showing the cost of each issue taking into consideration the method of
valuation, you think appropriate:-
May 2 Purchase 1200 kg @Tk. 5 per kg
May 5 Purchase 1000kg @ Tk 6 per kg
May 8 Issue 2220 kg
May 9 Purchase 1500 kg @Tk 7.00
May10 Purchase 1600 kg @ tk.6.00
May15 Issue 1300 kg
May 22 Return 200 kg excess flour from the factory to the storeroom-to be recorded at the latest
issued price.
May 24 Purchase 800 kg @tk. 8.00

May 28 Transfer from Department A to Department B 250 kg

At the end of the month, a physical verification of stock disclosed a shortage of 100 kg .In the
opening of each month, a normal wastage of 4% should be adjusted on the opening stock

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Problem-2
Draw up a stores ledger card from the following particulars, using LIFO,LIFO and Average
method of valuation of issue:
2008
July 1 Opening balance 500pcs @ Tk 2
July 3 Issue 70pcs
July 4 Issue 10pcs
July 7 Receipt (from suppliers) 200pcs @Tk. 2.50
July9 Return (from dept.) from issue dated 3. 20pcs
July 10 Shortages found 10pcs
July 13 Issue 70pcs
July 14 Receipt (from supplier) 100pcs @Tk. 2.20
July 18 Issue 300pcs
July26 Receipt (from suppliers) 50pcs@ Tk. 2.00
July 30 Issue 60pcs

Materials
Materials are the integral parts of a finished goods which is easily, conveniently and physically
traced to a finished goods. Materials are the basic element of a product which is converted into
finished goods through the use of labor and factory overhead.
Material Control
The objective of costing can be fulfilled if the elements of cost can be properly controlled.
Material control is a systematic control over the purchasing, storing and using of materials so as
to have the minimum possible cost of materials. It is accomplished through functional
organization, assignment of responsibility and documentary evidence obtained at various stages
of operations.
Level of Materials control
(a) Quantity or unit control
(b) Price or financial control
Objectives of Materials control
The objectives of material controls are:
i. To make available all types of materials and stores of right quality without
any interruption.
ii To make purchases of materials of required quality according to the
standard for finished product.
iii. To make purchase of materials at reasonably low cost or maximum
economy. Quality should not be lowered for the low cost.

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 iv. To provide the management with information of raw materials-cost,
availability etc.
v. To ensure proper storage and utilization of materials.

Methods or Procedures of Materials control

Materials control methods differ primarily in the care and cost expended. Critical items and high
value items require greater attention that do low value items. Control procedures of materials
commonly used are:
i. Order cycling or cycle review methods
ii The min-max method
iii The two bin method
iv The automatic order system and
v The ABC plan
i. Order cycling: It is a method in which a review of material on hand is made on a regular or
periodic cycle. Duration of review differ to different organizations on the basis of the high or
low inventory value. For example-inventory might be reviewed every 30 days or 60 days or 90
days.
ii. The min-max method: It is based on the assumption that material inventories have minimum
and maximum levels. Here minimum level provides margin of safety that helps to set the
quantity of purchase order. On the other hand, maximum level helps to establish the maximum
quantity for each material
iii. The two bin method: It contains two bin/ bundles. One is for containing enough stock to
satisfy usage between receipt and placing order. Another bin for safety stock which is used after
using stock of first bin. This is last bag of stock.
iv. The automatic order system: It is important method of materials control in which orders are
automatically placed as soon as the level of inventory reaches a predetermined order point of
quantity.
V. The ABC plan: Segregation of materials for selective control is called ABC plan. The ABC
plan measures the cost significance of each material item. “A” or high value items would be
under the tightest control and the responsibility of the most experienced personnel. “B” middle
class of cost item and under less than A’s higher than the C’s supervision and control. “C” items
would be under simple physical controls.
Segregation of material with examples
Categorically segregation
(a) High price Material (A)
(b) Medium price Material (B)
(c) Low priced Material (C)
Example:
10% of the items = 60% of usage cost = A
28% of the items = 25% of usage cost = B

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62% of the items = 15% of usage cost = C

Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is the amount of inventory to be ordered at one time for
purposes of minimizing annual inventory cost. In purchasing materials one of the important
problems to be faced is how much to buy at a time. If large quantities e bought, the cost of
carrying the inventory would be high. On the other hand, if purchase is made frequently in small
quantities, ordering cost will be high. So EOQ is the order size that minimizes both the cost of
carrying and the cost of ordering inventory in stock over a period.
EOQ=√ 2AO/CC
Where, A= Annual required units
O= Ordering cost / Cost of placing an order
CC = Carrying cost per unit
Ordering Cost: Ordering cost are costs incurred in placing and receiving inventory. These costs
may include cost of supplies, Stationery, postage, data processing, quality control and inspection
costs.
Carrying Cost: Carrying costs are incurred of holding inventory. These costs may include cost
of storage, insurance, property tax, spoilage, damage deterioration and obsolescence.

Level of stock
Re-order level: Re-order level which being reached by the stock, the purchases requisition is
required to be sent to the buying department.
Re- order level=Maximum usages *Maximum delivery time
Minimum stock levels: Minimum stock level is the lowest quantity level, which is expected to
be in stock at any time. It is really safety stock.
Formula: Re-order level-(Normal use*Normal delivery time)
Maximum Stock Level: Maximum stock level is the highest quantity level, which is expected
to be in stock at any time.
Formula: (Re-order level +Re-order quantity) – (Minimum use*minimum delivery time)
Average stock level:1/2(Minimum stock level +Maximum stock level)

Materials
Example 1.
From the following information calculate (a) Economic Order Quantity; (b) Re-ordering level;
(c) Maximum level; (d) Minimum level and (e) Average stock level of a raw material:
Total requirements 40.000 units @ Tk. 3 per unit; Cost per order Tk. 30 and carrying cost 20%
of average inventory.
Maximum consumption per week 1,000 units
Minimum consumption per week 400 units
Normal consumption per week 500 units
Delivery time 2-4 weeks

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Example 2.
The following information is available in respect of a raw material:
Annual requirement 30,000 units
Cost per unit Tk. 15
Ordering Cost Tk. 200
Carrying Cost 20% of average inventory
Required :
(a) Economic Order Quantity
(b) Loss or gain if the annual requirement is procured by a single order instead of on
the basis of economic order quantity 2% discount is available if bought at a time.
Example 3.
From the following information, calculate (a) Economic Order Quantity; (b) Re-order level; (c)
Minimum level and (d) Maximum level of a raw material:
Annual requirements 2,500 units
Cost per unit Tk. 20. Cost per order Tk. 100
Carrying cost 10% of average inventory
Minimum usage per month 200 units
Maximum usage per month 250 units
Normal usage per month 230 units
Delivery time 2-3 months.
(a) 500 units, (b) 750 units, (c) 175 units, (d) 850 units
4. From the following information, calculate:
(a) Re-order level; (b) Minimum level and (c) Maximum level and (d) average stock level of a
material:
Normal Consumption -50 units per day
Maximum Consumption-80 units per day.
Minimum Consumption-40 units per day.
Order quantity-2,000 units
Lead time-20 to 30 days.

5. From the following information, calculate for each material;

(a) Re-order level; (b) Minimum level and (c) Maximum level and (d) average stock level:
Minimum usage 250 units per week each
Normal usage 550 units per week each
Maximum usage 700 units per week each
Re-order quantity A 3,000 units, B 5,000 units
Re-order period A, 3-5 weeks, B 4-6 weeks.

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 Labor
The human contribution and efforts engaged in a production process is labor. Labor is an
important of constituent of cost of production. Form the point of view of sensitivity of the
various elements of cost, labor is the most sensitive, because it relates to human behavior.
Therefore, labor requires a completely different approach from those required for control of
other elements of cost. For the purpose of control of labor cost, the study of the behavior of
labor, measurement of performances, analysis of the results, time and motion study, control on
the attendance and departure, human approach in all matters are essential.

The control of labor cost means the control of labor cost per unit. So, if more output can be
obtained against the same rate of remuneration, unit cost is reduced. Thus, reduction in labor
cost does not mean wage-cut. It may mean more output for the same wage or more output for
higher wage etc. so that the unit cost is reduced.

 TYPES OF LABOR REQUIRED IN INDUSTRY

Followings are the different labor used in production:
a. Regular labor b. Hired labor
c. Casual labor d. Out workers

 RECRUITMENT
Every business should have a recruitment policy of its own. However, certain general factors
will govern the recruitment policies of an organization, which are: the type of activities
undertaken; categories of manpower required; volume of operation; seasonal nature of activities;
promotions and retirement; rat of labor turnover; legal restrictions etc.

 TIME KEEPING
Securing an accurate record of time purchased from an employee is the first step in labor
costing. It embraces the followings:
a. Employees’ attendance in and out of the factory gate.
b. Employees’ attendance in and out of a particular department
And, serves the followings:
a. Preparation of payrolls.
b. Ascertainment of labor cost of job, work order or operation.
c. Meeting the statutory requirements.
d. Determining productivity and control of labor cost through statistical analysis.
e. Apportionment overhead costs.

Methods of Time keeping

 Clock Card (or time card): It for unquestionable evidence of the employees’ presence in
the plant from the time of entry to departure.
 Time Ticket (or job ticket): It secures information as to the type of work performed.

 Job Card
A job card is used to keep a close check on the time spent by an operator on each job which he
does during the day. Its main purchases of job card are:
a. Authorizing the operator to carry out the operation as described thereon, and
b. Facilitating time booking to the job.

 Idle Time (Basu Das & Jawahar Lal)

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Idle time represents the time of a worker for which wage is paid but no work is obtained against
the payment. It is the time during which workers stay in the organization but do not provide any
service in spite of taking payment for the time. Some extent of idle time is inevitable in any
industry despite efficient management, because men are not machines. Idle time is the difference
between the time for which labors are being paid and the actual time they are spending on job.
Idle time may normal and abnormal.

 Normal Idle Time

Normal idle Time is that idle time which is unavoidable, of normal nature and is inherent in a
production or work environment. Normal idle time is caused by factors such as:
1. Time lost in moving from one job to another.
2. Time lost in waiting for materials or instructions.
3. Time taken in getting from the gate of the factory to the department in which the worker
is engaged and the reverse journey at the end of the day.
4. Temporary absences from duty because of minor accidents, personal needs, tea-breaks,
etc.

 Abnormal Idle Time

Abnormal idle time is that time which is not caused by or connected with the casual routine of
manufacture. Examples of abnormal idle time are:
1. Time lost though the breakdown of machinery due to the inefficiency of the works
engineers of to the failure of the power supply.
2. Time lost though lack of materials occasioned by the slackness of the store-keeper in
notifying the buying department of his requirements.
3. Bottlenecks in production, resulting in a temporary absence of parts for further
processing.
4. Strike, lock-out, fire, water damage, etc.

 Labor Turnover
The rate of changing organization of labor at particular time is the labor turnover. High turnover
ratio indicates unstable workers due to any reason and the position is not desirable in any
organization.

Labor turnover = Number of workers leaving during the

period
Average number of workers employed during
the period
Both avoidable and unavoidable reasons are responsible for labor turnover. Bad working
conditions, lack of job satisfaction, inadequacy of welfare measures, lack of scope of training
and promotion, long hours of work, lack of facilities for recreation, children’s education,
management inhumane attitude, lack of understanding amongst workers.

Unhealthy atmosphere of the locality, social unrest, retirement and death, leaving on better
chance, retrenchment during off-season in case of seasonal industries, disablement due to
disease of accident inside or outside, marriage of female workers, change of place due political
reasons or on the ground of health etc.

 Methods of Remuneration
The various methods of remuneration are:
1. Time rate method.
 Time rate at ordinary level

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  Time rate at high wages level
 Grand time rate level
2. Piece rate method
 Straight piece rate method
 Piece rate with graduate time rates
 Deferential piece rates method
3. Combined of time rate and Piece rate method
 Emersons efficiency plan
 Gantt task and bonus scheme
 Bendaux scheme
4. Premium bonus scheme or Incentive bonus
 Halsey premium plan
 Halsey weir premium plan
 Rowan premium plan

Example 1.(Straight Piece Rate System & Piece Rate with Guaranteed Time Rate System)
The following information is obtained from a work shop for a 48-hour week: Standard time for
production-20 minutes per unit. Normal rate of wages-Tk. 4.50 per hour. Actual production
during a week.
Haroon-130 units; Idris-148 units; Rubel-160 units and Tito-10 units. Calculate wages of the
workers under (a) Straight Piece Rate System and (b) Piece Rate with Guaranteed Time Rate
System.

Example 2. (Halsey Premium Plan)

Calculate the wages of a worker and his effective rate of earnings per hour from the following
particulars:
Standard time for production 8 hours
Hourly rate of wages Tk. 4
Actual time taken by the worker 5 hours
Bonus-50 percent of time saved.

Example 3. (Rowan Premium Plan)

From the following particulars calculate the actual wages and the effective rate of earnings per
hour:
Standard or allowed time for a job 20 hours
Actual time taken 16 hours
Hourly rate of wages Tk. 5.

Example 4.( Halsey Premium Plan & Rowan Premium Plan)

In a manufacturing company, 10 workers are engaged in winding Section. The following
information is available for a week:
Standard time for producing one unit is 15 minutes.
Actual production in 48-hour week is 2,880 units. The hourly rate of wages is Tk.2.
Required :

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 (a) The effective rate of earnings per hour under Halsey and Rowan plans. Which plan is
more acceptable to the workers?
(b) Savings of direct labor cost under both the plans.

Example 5. (Standard Time Plan)

The following particulars relate to a work process:

Standard time 10 hours
Standard output in Standard time 20 units
Normal rate per hour Tk 4
Actual output in Standard time:
Munir 16 units
Bashir 20 units
Ibrahim 25 units
Tahar 30 units

Calculate the wages payable to the workers

Example 6
A worked is allowed a guaranteed wages of Tk. 4 per hour in a 40 hour week. During a week, he
produces 150 units of a product. The normal time required for producing each unit is 18 minutes
but under incentive plants the allowed time is 20 minutes.
Calculate the wages of the worker for the week under the following methods:
(a) Halsey Premium Plan.
(b) Rowan Premium Plan
(c) Standard Time Plan.

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