CHAP MATERIAL COST
1) EOQ = root (2AO) where
C*i
A = annual requirement
O = cost of placing an order
C = unit purchase price
i = carrying cost expenditure as a % of unit purchase price
2) No of orders =
3)
4)
5)
6)
7)
8)
9)
A
Order size
Carrying cost = (Order size) * (cost price) * (carrying cost in %)
2
Total cost = carrying cost + Ordering cost
Re-order level = Maximum lead time * Maximum usage
Maximum level = Reorder level + Reorder quantity – (Minimum Usage * Minimum
lead time )
Minimum level = Reorder level – (Normal lead time * Normal Usage)
Average level = (Max. level + Min. level)
2
Or
Safety stock + (Max. level or EOQ)
2
Danger level = Normal Usage * lead time for emergency purchases
CHAP LABOUR COST
A] Time Rate System:
1) High Wage Plan
2) Differential Time rate
Efficiency
Upto 80%
Between 80% - 90%
Between 90% - 100%
Between 100% - 125%
Normal day rate
Re 1 (Normal rate)
Rs 1.25
Rs 1.40
Rs 1.50
B] Payment by Results
a) Straight Piece Rate System
b) Piece Rate with Guaranteed Time Rate
c) Differential Piece Rate System:
Efficiency
Upto 83.%
Between 83% - 100 %
Above 100%
The above is again differentiated into
Piece rate
Normal piece rate
10% above normal piece rate
30% above normal piece rate
1) Taylor Differential Piece Rate
2) Merrick Differential Piece Rate:
Efficiency
Upto 83.%
Between 83% - 100 %
Above 100%
Piece rate
Normal rate
110% above normal rate
130% above normal rate
3) Gantt Task Bonus System –
It is a combination of time rate and piece rate and provides for minimum time rate payment.
The wage structure may be fixed as below:
Output below standard
Output at standard
Output above standard
Minimum time rate payment
Time wages + some increase in wage rates
High piece rate for entire output
C] Individual Incentive Systems:
1) Halsey Premium System –
(AR * HR) + {(SH – AH) * HR} (assuming 50% - 50% sharing between the
2
worker and employer)
2) Halsey – Weir Premium System 1/3:2/3 ratio between worker and the employer
3) Rowan Premium System –
(AH * HR) {1 + SH – AH}
SH
D] Other methods of Premiums:
1) Barth Premium System –
Wages = HR * root (SH * AH)
Applicable only for beginners or apprentices
2) Emerson’s Efficiency Bonus System –
Wages = {AH * HR + Bonus % of AH * HR}
Efficiency
Bonus
Upto 63.333%
No bonus
66.333% - 100%
Increases from 20% to 100%
Above 100%
20% + 1% bonus increase in every  in
efficiency
Eg. 101%  21% bonus
120%  30% bonus
120%  40% & so on
Suitable for non- efficient workers for improving their efficiency
Calculation for efficiency % :
On Time basis SH * 100
AH
On Output basis –
AH * 100
SH
3) Bedaux Point System –
SH is divided into standard minutes & each standard minute is called Bedaux point or B.
(B’s = no of Bs’ saved)
Wages = AH * HR + 75% of Bs * HR
60
4) Accelerating Premium System –
Here incentive increase in a faster rate with an increase in output.
Y = 0.8 X 2 where
Y = earnings and X = efficiency
Now Earnings = (Basic wages + bonus) in % [for eg. If earnings = 1.25 then 125% =
100 % basic wages + 25 % bonus]
Basic wages = AH * HR
Bonus = % of basic wages
5) Baum Differential Plan –
Also called Milwankee Plan. It is a combination of Taylor Differential Piece rate + Halsey
System
6) Diemer System –
It is a combination of Halsey System + Gantt System
Measurement of Labour Turnover:
1] Separation Method:
No. of separations
* 100
Average no of workers
2] Replacement Method:
No. of replacements
* 100
Average no of workers
3] Flux Method:
No. of separations + No of replacements
Average no of workers
* 100
Treatment of Idle time:
(Read all the cases)
case III
When idle time is normal and uncontrollable then, if attended time = x, time booked = y and
labour cost = l then
Idle time = lx /y
CHAP OVERHEAD COSTS
1] Direct Material Cost % Rate:
Amount of overheads to be absorbed
Direct Material Cost
* 100
2] Direct Wages Cost % Rate:
Amount of overheads to be absorbed
Direct wages Cost
* 100
3] Prime Cost % Rate:
Amount of overheads to be absorbed
Prime Cost
* 100
4] Labour Hour Rate:
Amount of overheads to be absorbed
Labour hours required for production
* 100
5] Machine Hour Rate:
Amount of overheads to be absorbed
No. of Machines hours
* 100
Eg. period
Overheads
Absorbed (Rs)
Actual
Overheads (Rs)
Remarks
I
7500
9000
Under absorption
II
10000
8000
Over absorption