Lecture by: Mr.

Farrukh Abbas

Paper F2, Management Accounting

INCENTIVE BASED SCHEMES

Individual Based

Group Based

High Day Rate

Bonus Scheme

Profit Sharing Scheme

Group Bonus

Example:
An employee works for 32 hours in a week and is paid @ $10/hour. Any Overtime is paid @ Time and a Half. In
addition to pay employee is entitled to receive a bonus for 80% of time saved at basic rate. Standard time allowed to
produce 1 unit is 2 Hours. Calculate his total pay for the week if 20 units were produced and no overtime was
worked?
Solution:
Basic Pay

=
=

32 hours
$320

$10/hour

Time Saved

=
=
=

Time Allowed 40 Hours

8 Hours

Bonus

=
=
=
=

80% of Time Saved @ Basic rate

(80% x 8 Hours) x $10
6.4 Hours x $10
$64

Time Taken
32 Hours

So,
Total Pay Received

=
=
=

Basic Pay
$320
$384

+
+

Bonus
$64

1-Page | 26th of April 2011

Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI
http://acca.moviezbuzz.com

Lecture by: Mr. Farrukh Abbas

Paper F2, Management Accounting

FORMULAS
1. Labor Turn Over:
It tells us the percentage of average employees that are being replaced during a period.

 


.       

 100
 .      

     

!  "    # !  !    

2
Example:
There were 200 employees at the start of the year and during the year 50 employees left & 30 were replaced and no.
of employees at the end was 210. Calculate the Labor Turn Over?
Solutions:
     
!  "    # !  !    

2
     

200 # 210
2

      205

 


.       

 100
 .      

 


30
 100
205

 
 14.6%

2. Idle Time Ratio:

It tells us the percentage of hours paid that were idle.
*  

* +
 100
+ 

* + + , - + ./

Example:
During a month a business paid its employees for 3000 Hours but employees actually worked for 2400 Hours.
Calculate the Idle Time Ratio?
2-Page | 26th of April 2011

Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI
http://acca.moviezbuzz.com

Lecture by: Mr. Farrukh Abbas

Paper F2, Management Accounting

Solution:
* + + , - + ./
* + 3000 - 2400
* + 600
*  

600
 100
3000

*   20%

3. Efficiency Ratio:
!  

"  +

 100
 +

"  +  ,  +/ 1 

4. Capacity Ratio:
2 

 +
 100
3 +

3 + 3 ,  +/ 1 

5. Activity/Production Volume Ratio:

/, 4 

"  +

 100
3 +

Example:
A Company has a budget to produce 2500 Units of its Product X. Each unit requires 2 Hours of labor. In actual 5500
Hours were worked and 3000 Units were produced. Calculate Efficiency, Capacity and Activity Volume Ratio?
Solutions:
"  +  ,  +/ 1 
"  + 3000  2
567897:9 ;<=:> 6000 +
?@6=7A ;<=:> 5500 +
3 + 3 ,  +/ 1 
3 + 2500  2
B=9CD6D9 ;<=:> 5000 +
3-Page | 26th of April 2011

Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI
http://acca.moviezbuzz.com

Lecture by: Mr. Farrukh Abbas

Paper F2, Management Accounting

!  

"  +

 100
 +

!  

6000
 100
5500

EFFG@GD8@H I76G< JKL%

2 

 +
 100
3 +

2 

5500
 100
5000

M7N7@G6H I76G< JJK%

/, 4 

"  +

 100
3 +

/, 4 

6000
 100
5000

/, 4 

6000
 100
5000

?@6GOG6H/P:<9=@6G<8 Q<A=RD I76G< JSK%

4-Page | 26th of April 2011

Prepared by: Mani Shah

CENTER FOR PROFESSIONAL EXCELLENCE, RAWALPINDI
http://acca.moviezbuzz.com