CHAPTER 11
DISCUSSION QUESTIONS
Q11-1. Yes, to the extent that it is practical to meas- Q11-6. Generally, hourly earnings go up with
ure the value added or the productivity of a increased production, and labor cost per
worker. However, measurement of the contri- unit of output is reduced. High production
bution of each individual is never exact. Also, rates also reduce overhead cost per unit of
a business cannot pay more for materials or output, which is often the most significant
labor than the sales price will recover. savings.
Materials, workers, and machines produce Q11-7. (a) During periods of curtailed activity, it is
products and services. There must be a differ- just as necessary to keep costs down as
ence between revenue and costs consumed; it is when operating at full capacity.
otherwise, the business cannot survive. Assuming that the incentive wage plan
Q11-2. Productivity may be defined as the measure- resulted in greater labor efficiency and
ment of production performance using the lower costs per unit at full capacity, then
expenditure of human effort as a yardstick. In the labor cost per unit should be lower in
a broader sense, it may be described as the a slack period if the incentive wage scale
efficiency with which resources are converted is continued. A shorter workweek or some
into commodities and/or services that people other system of sharing the work would
want. be indicated.
Q11-3. Productivity is important to a firm because (b) Ordinarily, it is not a propitious time to ini-
high productivity reduces the unit cost of the tiate an incentive wage plan when a plant
output and makes the firm more competitive. is operating far below capacity, because
It is important to workers because their real the worker is already fearful of something
earnings should be increased when produc- less than full employment. If a reasonable
tivity is high. Productivity is important to soci- day’s work is being received for the going
ety because increased productivity enables rate of pay, postponement of the incentive
society to get more and better output from the plan is indicated. However, there is a nat-
basic resources of the economy. ural tendency for workers to reduce output
Q11-4. To measure labor efficiency, it is necessary to during such periods, thereby increasing
establish a standard of performance. This costs, with a tendency to bring about fur-
means determining how much a worker ther reduction in the volume that can be
should be able to produce, or how much a sold. With full explanation and under-
work crew should be able to produce. The standing of the situation, the incentive
standard is determined by time and motion wage could be introduced with a plant
study, test runs by skilled workers, and aver- operating at 60% capacity.
ages of past performance by skilled workers. Q11-8. In the straight piecework plan, each worker is
Q11-5. The purpose of an incentive wage plan is to paid a certain amount for each unit produced,
induce a worker to produce more, resulting in while being guaranteed a base hourly wage.
a higher wage and reduced conversion cost In the 100% bonus plan, each worker is paid
per unit. Frequently, machine output is limited for the standard time to complete the job or
by worker performance. If employee perform- units if the job or units are finished in standard
ance can be increased, machine cost per unit time or less. In the group bonus plan, workers
of production will decrease. An incentive in a group are paid their standard hourly
wage plan may also reduce loafing, indiffer- wage. If the group produces units in excess of
ence, and carelessness, and may generate a the standard, the workers are paid for the time
cost-conscious labor force. saved.
11-1
,11-2 Chapter 11
Q11-9. An organizational or gainsharing incentive (b) Determination of labor hours consumed
plan is designed to provide incentive pay to all on each job or in a department is a part
employees by way of an organization-wide of cost determination for a job or
plan that rewards for improved productivity. process. It should also be a measure of
Q11-10. The basic concept underlying the relation- labor efficiency, since hours consumed
ship involved in the cumulative average time and productive output can be compared.
learning curve model is that every time the Q11-15. (a) The clock card shows the amount of
cumulative quantity of units produced is dou- time an employee spent in the plant
bled, the cumulative average time per unit is each day of a payroll period. It is evi-
reduced by a given percentage. dence that the employee’s time has
Q11-11. The learning curve theory is used to solve been purchased.
problems such as determining labor costs in (b) The time ticket shows the amount of
bids for government contracts, determining time an employee spends each day on
lot costs for various stages of production each job or in each department. It is an
runs, predicting labor-hour requirements, itemized invoice of the time that the
permitting the calculations of standard labor employee sells to the employer.
cost variances, assisting in the evaluation of Q11-16. Since the clock cards show the time employ-
a manager’s performance, and providing a ees are in the plant, the first step is to make
basis for cost control. sure no error exists on the time tickets. If the
Q11-12. The financial accounting aspect is concerned total time shown on the time tickets is cor-
with a record of earnings of each employee rect, then the workers spent time in the plant
and payment of the workers. Financial when not working or not assigned to specific
accounting records income, FICA, and other jobs or departments, or when assigned to
payroll taxes and deductions withheld; pro- maintenance or repair work For the time that
vides for disbursing funds to workers and to is idle or assigned to indirect labor, a charge
taxing and other agencies; reports to each is made to Factory Overhead.
employee at least annually the amount of Q11-17. Bar codes are symbols that can be processed
wages earned and the amounts withheld for electronically to identify numbers, letters, or
various purposes; and records the payroll special characters. Bar-coded employee
liability and payment each payroll period. identification cards or badges, and task
The cost accounting aspect is concerned identifications can be used to replace clock
with time worked on each job or in each cost cards and time tickets to collect payroll data
center, in order to determine the labor hours and to measure worker activity.
and labor cost of production. Q11-18. Appendix One method would be to charge
Q11-13. An efficient labor force begins with the the premium costs directly to the
design of the product and an analysis of pro- products in the same manner as
duction techniques and job requirements. straight-time labor costs. This
With the personnel department adequately would be appropriate when partic-
informed about job specifications, It is the ular jobs have to be rushed to
function of this department to secure the completion. A second method
personnel qualified to do each job. The pro- would be to treat the premium as
duction planning department keeps the work an overhead element to be
flowing smoothly. The timekeeping, payroll, charged to all production through
and cost accounting departments contribute the allocation of overhead. It
to the total efficiency by accounting for the would be appropriate when the
time purchased and by making payment for overtime is a recurring condition
the work as well as charging the cost to the normally incident to the level of
proper department and product. operations.
Q11-14. (a) Determining labor hours worked by Q11-19. Appendix The bonus and vacation pay
each employee is primarily for payroll should be accrued over the bene-
purposes and financial accounting. fited time period. When the bonus
, Chapter 11 11-3
and vacation pay are paid, the on a systematic and rational basis
accrued liability account is debited that does not distort the operating
and the cash and withholding results of any one year. These
accounts are credited. costs are incurred in contempla-
Q11-20. Appendix The recommended method in tion of the present and future serv-
computing costs under a pension ices not only of the individual
plan is to determine actuarially employee, but also of the organi-
the eventual pension payments to zation as a whole. Benefits of the
covered employees and to charge plan—such as improved morale,
these future payments as a cost removal of superannuated employ-
of current production over the ees, and attraction of more desir-
expected period of active service of able personnel—are expected to
covered employees. Costs based improve the operating efficiency of
on past services should be written a company.
off over some reasonable period
DISCUSSION QUESTIONS
Q11-1. Yes, to the extent that it is practical to meas- Q11-6. Generally, hourly earnings go up with
ure the value added or the productivity of a increased production, and labor cost per
worker. However, measurement of the contri- unit of output is reduced. High production
bution of each individual is never exact. Also, rates also reduce overhead cost per unit of
a business cannot pay more for materials or output, which is often the most significant
labor than the sales price will recover. savings.
Materials, workers, and machines produce Q11-7. (a) During periods of curtailed activity, it is
products and services. There must be a differ- just as necessary to keep costs down as
ence between revenue and costs consumed; it is when operating at full capacity.
otherwise, the business cannot survive. Assuming that the incentive wage plan
Q11-2. Productivity may be defined as the measure- resulted in greater labor efficiency and
ment of production performance using the lower costs per unit at full capacity, then
expenditure of human effort as a yardstick. In the labor cost per unit should be lower in
a broader sense, it may be described as the a slack period if the incentive wage scale
efficiency with which resources are converted is continued. A shorter workweek or some
into commodities and/or services that people other system of sharing the work would
want. be indicated.
Q11-3. Productivity is important to a firm because (b) Ordinarily, it is not a propitious time to ini-
high productivity reduces the unit cost of the tiate an incentive wage plan when a plant
output and makes the firm more competitive. is operating far below capacity, because
It is important to workers because their real the worker is already fearful of something
earnings should be increased when produc- less than full employment. If a reasonable
tivity is high. Productivity is important to soci- day’s work is being received for the going
ety because increased productivity enables rate of pay, postponement of the incentive
society to get more and better output from the plan is indicated. However, there is a nat-
basic resources of the economy. ural tendency for workers to reduce output
Q11-4. To measure labor efficiency, it is necessary to during such periods, thereby increasing
establish a standard of performance. This costs, with a tendency to bring about fur-
means determining how much a worker ther reduction in the volume that can be
should be able to produce, or how much a sold. With full explanation and under-
work crew should be able to produce. The standing of the situation, the incentive
standard is determined by time and motion wage could be introduced with a plant
study, test runs by skilled workers, and aver- operating at 60% capacity.
ages of past performance by skilled workers. Q11-8. In the straight piecework plan, each worker is
Q11-5. The purpose of an incentive wage plan is to paid a certain amount for each unit produced,
induce a worker to produce more, resulting in while being guaranteed a base hourly wage.
a higher wage and reduced conversion cost In the 100% bonus plan, each worker is paid
per unit. Frequently, machine output is limited for the standard time to complete the job or
by worker performance. If employee perform- units if the job or units are finished in standard
ance can be increased, machine cost per unit time or less. In the group bonus plan, workers
of production will decrease. An incentive in a group are paid their standard hourly
wage plan may also reduce loafing, indiffer- wage. If the group produces units in excess of
ence, and carelessness, and may generate a the standard, the workers are paid for the time
cost-conscious labor force. saved.
11-1
,11-2 Chapter 11
Q11-9. An organizational or gainsharing incentive (b) Determination of labor hours consumed
plan is designed to provide incentive pay to all on each job or in a department is a part
employees by way of an organization-wide of cost determination for a job or
plan that rewards for improved productivity. process. It should also be a measure of
Q11-10. The basic concept underlying the relation- labor efficiency, since hours consumed
ship involved in the cumulative average time and productive output can be compared.
learning curve model is that every time the Q11-15. (a) The clock card shows the amount of
cumulative quantity of units produced is dou- time an employee spent in the plant
bled, the cumulative average time per unit is each day of a payroll period. It is evi-
reduced by a given percentage. dence that the employee’s time has
Q11-11. The learning curve theory is used to solve been purchased.
problems such as determining labor costs in (b) The time ticket shows the amount of
bids for government contracts, determining time an employee spends each day on
lot costs for various stages of production each job or in each department. It is an
runs, predicting labor-hour requirements, itemized invoice of the time that the
permitting the calculations of standard labor employee sells to the employer.
cost variances, assisting in the evaluation of Q11-16. Since the clock cards show the time employ-
a manager’s performance, and providing a ees are in the plant, the first step is to make
basis for cost control. sure no error exists on the time tickets. If the
Q11-12. The financial accounting aspect is concerned total time shown on the time tickets is cor-
with a record of earnings of each employee rect, then the workers spent time in the plant
and payment of the workers. Financial when not working or not assigned to specific
accounting records income, FICA, and other jobs or departments, or when assigned to
payroll taxes and deductions withheld; pro- maintenance or repair work For the time that
vides for disbursing funds to workers and to is idle or assigned to indirect labor, a charge
taxing and other agencies; reports to each is made to Factory Overhead.
employee at least annually the amount of Q11-17. Bar codes are symbols that can be processed
wages earned and the amounts withheld for electronically to identify numbers, letters, or
various purposes; and records the payroll special characters. Bar-coded employee
liability and payment each payroll period. identification cards or badges, and task
The cost accounting aspect is concerned identifications can be used to replace clock
with time worked on each job or in each cost cards and time tickets to collect payroll data
center, in order to determine the labor hours and to measure worker activity.
and labor cost of production. Q11-18. Appendix One method would be to charge
Q11-13. An efficient labor force begins with the the premium costs directly to the
design of the product and an analysis of pro- products in the same manner as
duction techniques and job requirements. straight-time labor costs. This
With the personnel department adequately would be appropriate when partic-
informed about job specifications, It is the ular jobs have to be rushed to
function of this department to secure the completion. A second method
personnel qualified to do each job. The pro- would be to treat the premium as
duction planning department keeps the work an overhead element to be
flowing smoothly. The timekeeping, payroll, charged to all production through
and cost accounting departments contribute the allocation of overhead. It
to the total efficiency by accounting for the would be appropriate when the
time purchased and by making payment for overtime is a recurring condition
the work as well as charging the cost to the normally incident to the level of
proper department and product. operations.
Q11-14. (a) Determining labor hours worked by Q11-19. Appendix The bonus and vacation pay
each employee is primarily for payroll should be accrued over the bene-
purposes and financial accounting. fited time period. When the bonus
, Chapter 11 11-3
and vacation pay are paid, the on a systematic and rational basis
accrued liability account is debited that does not distort the operating
and the cash and withholding results of any one year. These
accounts are credited. costs are incurred in contempla-
Q11-20. Appendix The recommended method in tion of the present and future serv-
computing costs under a pension ices not only of the individual
plan is to determine actuarially employee, but also of the organi-
the eventual pension payments to zation as a whole. Benefits of the
covered employees and to charge plan—such as improved morale,
these future payments as a cost removal of superannuated employ-
of current production over the ees, and attraction of more desir-
expected period of active service of able personnel—are expected to
covered employees. Costs based improve the operating efficiency of
on past services should be written a company.
off over some reasonable period
