Question Tag: Piece Rate

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  • 20 Marks

IMAC – MAR 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Discuss tasks suitable for piece rate and hourly rate payment systems and compute labor variances and standard costing variances.

a) Employees may be paid either using piece rate or hourly rate.

Required:
In reference to the statement above, state THREE (3) tasks/jobs that:
i) Piece rate may be used. (3 marks)
ii) Hourly rate may be used. (3 marks)

b) Krenkren enterprise uses the hourly rate to pay her employees. The current rate is GH¢6 per hour. However, employees are paid 1.5 times for each overtime hour worked. Each employee is to work a minimum of 40 hours a week without a guaranteed payment. Any extra hour will attract overtime rate.

Extract from the time sheet for a week has been provided below:

Name Staff Number Hours worked
Kwame Sarfo H 1356 56
John Addae H 3456 38
Thomas Appia F 2254 48
Rose Danso F 8645 50

Required:
Calculate the basic pay for each of the staff. (9 marks)

c) The following standard costs apply to the manufacture of a product by Pontir Ltd:

  • Standard weight to produce one unit: 12 kgs
  • Standard price per kg: GH¢9
  • Standard hours to produce one unit: 10
  • Standard rate per hour: GH¢4

Actual production and costs for one accounting period were:

Cost Element Actual Usage Actual Cost (GH¢)
Material 3,770 kgs 35,815
Labour 2,755 hours 11,571

The actual output was 290 units.

Required:
Calculate relevant material and labor cost variances and present these in a format suitable for presentation to the management of Pontir Ltd. (5 marks)

a)
i) Tasks that may use Piece rate as a mode of payment:

  • Molding of blocks
  • Production of pieces of furniture
  • Sewing of dresses
  • Baking of bread
    (Any 3 points @ 1 mark each = 3 marks)

ii) Tasks that may use Hourly rate as a mode of payment:

  • Dressing of hair at the salon
  • Clerical work at the office
  • Servicing of cars
  • Maintenance of machines
  • Repair of equipment
    (Any 3 points @ 1 mark each = 3 marks)

b)
Computation of basic pay:

Name Staff Number Hours Worked Rate (GH¢) Overtime Hours Overtime Rate Basic Pay (GH¢)
Kwame Sarfo H 1356 56 6 16 1.5 × 6 384
John Addae H 3456 38 6 0 0 228
Thomas Appia F 2254 48 6 8 1.5 × 6 312
Rose Danso F 8645 50 6 10 1.5 × 6 330

Total: (9 marks)

c)
Summary of variances for one accounting period
(F = Favourable; A = Adverse)

Materials:

Variance Type Amount (GH¢) Favourable/Adverse
Price 1,885 A
Usage 2,610 A
Cost 4,495 A

Labour:

Variance Type Amount (GH¢) Favourable/Adverse
Rate 551 A
Efficiency 580 F
Cost 29 F

Workings:
Materials:

  • Actual cost: GH¢35,815
  • Price variance: GH¢1,885 A
  • Actual quantity purchased/used: 3,770 × GH¢9 = GH¢33,930
  • Usage variance: GH¢2,610 A
  • Standard quantity for actual production at standard price: 290 × 12 × GH¢9 = GH¢31,320
  • Cost variance: GH¢4,495 A

Labour:

  • Actual cost: GH¢11,571
  • Rate variance: GH¢551 A
  • Actual quantity purchased/used: 2,755 × GH¢4 = GH¢11,020
  • Efficiency variance: GH¢580 F
  • Standard quantity for actual production at standard price: 290 × 10 × GH¢4 = GH¢11,600
  • Cost variance: GH¢29 F
    Total: (5 marks)
  • 20 Marks

IMAC – NOV 2019 – L1 – Q4 – Accounting for Inventory and Labour

Calculate material variances, explain time and piece rate, and compute direct and indirect labour costs

Walata Ltd manufactures and sells a unique anti-cold formula called the Magic Ball. The product is produced from a combination of two ingredients; R and Q with the following details:

Standard quantity per unit:

  • Q: 3kg
  • R: 2kg

Standard prices:

  • Q: GH¢2.50
  • R: GH¢4.00

For the quarter just ended, the following results were recorded:

  • Actual production: 2,000 units
Material Quantity purchased and used Price per Kilogramme
Q 4,800 kg GH¢4.25
R 5,400 kg GH¢2.20

Required:
i) Calculate the price variance for each material. (3 marks)
ii) Calculate the usage variance for each material. (3 marks)

b) Apagya Ltd has two product lines AB and CD. Time rate and piece rate labour rewarding systems are used for AB and CD products respectively.
Required:
Explain the terms time rate and piece rate, clearly outlining their differences and giving examples of business settings where each could be applied. (4 marks)

c) AB Ltd operates a 40-hour weekly work regime and rewards labour for all overtime worked at time and one-half.
The wage rate is GH¢80 per hour.
The following details are recorded for the month of October 2019 for an employee (Adamu):

Week Hours Worked
1 36
2 48
3 45
4 46

Required:
i) Compute the total direct labour costs for Adamu for the month of October 2019. (4 marks)
ii) Calculate the total indirect labour costs for Adamu for the month of October 2019. (4 marks)

d) Explain the treatment of overtime premium in accounting for labour costs. (2 marks)

 

b) Piece Rate
This is a wage reward system where labour is paid based on the volume of work done. Here, the output recorded is the reference point for measuring the wages payable to the employee but not the time spent. Examples of production settings where this rate system is applicable may include construction, manufacturing, food processing, etc. (2 marks)

Time Rate
This is a reward system that relates wages to the time spent by the employee. Example: hourly, daily, weekly, fortnightly, or monthly, depending on the nature of the employee’s skill. This is usually used in service firms such as accounting firms, hospitality services, law firms, etc. (2 marks)

c) AB Ltd
i) Computation of total direct labour costs for the month of October 2019

Week Hours Worked Calculation Cost (GH¢)
1 36 36 x GH¢80 2,880
2 48 48 x GH¢80 3,840
3 45 45 x GH¢80 3,600
4 46 46 x GH¢80 3,680
Total 14,000
(4 marks evenly spread using ticks)

ii) Computation of total indirect labour costs for the month of October 2019

Item Calculation Cost (GH¢)
Idle time 4 x GH¢80 320
Overtime premium (Week 2) 8 x GH¢80 x 50% 320
Overtime premium (Week 3) 5 x GH¢80 x 50% 200
Overtime premium (Week 4) 6 x GH¢80 x 50% 240
Total 1,080
(4 marks evenly spread using ticks)

d) Treatment of Overtime Premium in Accounting for Labour Costs
Overtime premium is generally accounted for as indirect labour costs. However, where overtime payments result from customer-specific requirements for the production of a product or job, then such overtime premium may be accounted for as direct labour.
(2 marks)

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