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AC 743

TOPIC four

Discuss the accounting treatment of idle time and overtime wages


Distinguish between Direct and Indirect labour

Calculate the total earnings from the following data under Halsey plan and under Halsey-weir
plan. Standard Time: 100 hours; Time taken: 80 hours; Time rate: Tshs.25,000 per hour
A skilled worker in XYZ Ltd. is paid a guaranteed wage rate of Tshs. 30,000 per hour.
The standard time per unit for a particular product is 4 hours. Mgonasipapune, a machine
man, has been paid wages under the Rowan Incentive Plan and he had earned an
effective hourly rate of ` 37,500 on the manufacture of that particular product.
What could have been his total earnings and effective hourly rate, had he been put on Halsey
Incentive Scheme (50%)?
The finishing shop of a company employs 60 direct workers. Each worker is paid
Tshs. 400,000 as wages per week of 40 hours. When necessary, overtime is worked
up to a maximum of 15 hours per week per worker at time rate plus one-half as
premium. The current output on an average is 6 units per man hour which may be
regarded as standard output. If bonus scheme is introduced, it is expected that the output
will increase to 8 units per man hour. The workers will, if necessary, continue to work
Overtime up to the specified limit although no premium on incentives will be paid.

The company is considering introduction of either Halsey Scheme or Rowan Scheme of

Wage Incentive system. The budgeted weekly output is 19,200 units. The selling price is
Tshs 11,000 per unit and the direct Material Cost is Tshs. 8,000 per unit. The variable
overheads amount to Tshs. 500 per direct labour hour and the fixed overhead is Tshs.
9,000 per week.
Prepare a Statement to show the effect on the Company’s weekly Profit of the
proposal to introduce (a) Halsey Scheme, and (b) Rowan Scheme.

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What do you understand by overtime premium? What is the effect of overtime
payment on productivity and cost? Discuss the treatment of overtime premium in
cost accounts and suggest a procedure for control of overtime work.

X Ltd has recorded the following cost for direct workers for month of Dec.
Basic Pay 4,000,000
Overtime premium 300,000
Holiday pay 100,000
Idle time 50,000
Sick pay 50,000
Prepare Journal Entries to record the above transactions

From the following information prepare a payroll for the month of May 2013
Clock No. Name Number of hours Rate per hour Advance
worked Tshs
5012 A. Robert 180 10 500
5016 S. Mwangi 200 14 700
5011 J. Alex 190 12 600
5015 R. Josphet 210 10 800
5013 P. Wachira 200 16 800
5014 G. Paul 170 13 500

Additional information
(a) Normal working hours per month are 180. Overtime payable for extra hours at the
rate of 50% above normal rate.
(b) PAYE to be deducted at the rate of 10% of gross wages
(c) NSSF to be deducted Tshs.80 for each employee
(d) NHIF to be deducted Tshs. 20 for each employee

QUESTION TWO (20 Marks)(FINAL 2014/2015)
A worker under Halsey Plan of remuneration has a day rate of Tshs. 144,000 per week of 48
hours plus a cost of living Tshs. 1000 per hour worked. He is given an 8 hours task to perform;
which he accomplishes in 6 hours. He is allowed 30% of the time saved as a premium bonus
(a) Calculate his total Hourly rate of earning (12 Marks)
(b) Calculate the difference between the hourly rate obtained in (a) above if he is paid under
Rowan Scheme (8 Marks)

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EKSIWAIZEDI Ltd. is working by employing 50 skilled workers, it is considered the

introduction of incentive scheme-either Halsey scheme (with 50% bonus) or Rowan scheme
of wage payment for increasing the labour productivity to cope up the increasing demand for
the product by 40%. It is believed that proposed incentive scheme could bring about an
average 20% increase over the present earnings of the workers; it could act as sufficient
incentive for them to produce more. Because of assurance, the increase in productivity has
been observed as revealed by the figures for the month of September, 2015.

Hourly rate of wages (guaranteed)
 Tshs. 30,000

Average time for producing one unit by one worker at the previous 1.975 hours

Performance (This may be taken as time allowed)

Number of working days in the month

Number of working hours per day of each worker

Actual production during the month
Required: 6120 units


(i) Calculate the effective rate of earnings under the Halsey scheme (10 Marks)
(ii) Calculate the effective rate of earnings under the Rowan scheme. (10 Marks)
(iii) Calculate the savings to the EKSIWAIZEDI Limited in terms of direct labour
cost per piece. (5 Marks)

You are the cost accountant of Chinangunga Ltd and have been asked to prepare the wages control
account for the company in order to determine the net deductions for the 20 employees of the company
working in a factory.

The following information is extracted from a weekly payroll for the 20 employees:

(i) 15 employees are directly involved with the work done at the factory while 5 of them are
support staff.

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(ii) Employees are paid Tshs. 10,500 per hour and were paid for the 8 hours worked during the first
week of December 2016 for 5 days.
(iii) The employees worked 2 hours per day during the first week as overtime and were paid at time
and half.
(iv) Employees received risk allowance of Tshs. 250,000 each per week.
(v) Sick pay was paid to the factory workers totaling Tshs. 2,300,000 while support staff received
Tshs. 1,100,000.
(vi) Total idle time was paid amounting to Tshs. 4,050,000
(vii) It was established that the factory workers’ net wages was Tshs. 14,571,875 while the support
staff received Tshs. 4, 428, 125.00


Prepare the wages control account for the first week of December 2016 to determine the total deductions
made from the gross wages ( 25 Marks)

Show all your workings

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