Labor Costing: Practical Questions With Answers

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 02, 2023

Question 1

Consider the following information concerning the monthly remuneration of three workers:

  • Standard production per month per worker 1,000 units
  • Actual production during the month: A, 850 units; B, 750 units; and C, 950 units.
  • Piece work rate is $0.10 per unit (actual production)
  • Additional production bonus is $10 for each percentage of actual production that exceeds 80% over standard

Required: Calculate the total monthly remuneration for three workers: A, B ,and C.

Solution

Total Monthly Remuneration for Workers

Question 2

Production sections of a factory working on a job order system pay their workers under the Rowan Premium Bonus Scheme.

Workers are also entitled to a dearness allowance of $25 per week of 48 hours.

A worker's basic wage is $4 per day (8 hours), and the timesheet for a week is summarized below.

Job No.

Time Allowed

Time Taken

1

25 hours

20 hours

2

30 hours

20 hours

Idle time (waiting) 8 hours.

Required: Calculate the gross wages that a worker earns for the week.

Solution

Job No. 1

Job No. 2

Time Allowed

25 hrs.

30 hrs.

Time Taken

20 hrs.

20 hrs.

Time Saved

05 hrs.

10 hrs.

Bonus Hours (Rowan Plan)

Bonus Hours (Rowan Plan)

Gross Earnings

Job No. 1

$22.00

Job No. 2

$23.33

Idle time wages (8 x .50)

$4.00

Dearness allowance for idle time (8 x 0.50)

$4.00

Total wages

$53.33

Calculation

Labor Costing Calculation

Question 3

An operator engaged in machining components receives an ordinary day rate of $160 per day for an 8-hour day.

The standard output for machining the components has been fixed at $0.80 per hour (time fixed for premium bonus). On a certain day, the worker's output on the machine is 800.

Required: Find the labor cost per 100 pieces and the wages earned under the following conditions:

  • If a bonus of $19 is paid per 100 extra output
  • If paid for on straight piece work basis at the standard rate

Solution

1. Bonus of $19 is paid per 100 extra output

Standard output per hour

= 80 pieces

Standard output per day or for 8 hours

= 80 x 8

= 640 pieces

Actual output in 8 hours or in a day

= 800 pieces

Extra output

= 800 - 640

= 160 pieces


Bonus

For 100 extra output, bonus is

= $19.00

For 1 extra output, bonus is

= $19.100

For 160 extra output, bonus is

= (19 / 100) x 160

= $30.40

Regular wages for 8 hours

= $160.00

+ Bonus

= $30.40

Total wages

= $190.40


Per 100 Piece Wages

For 800 pieces wages

= $190.40

For 1 piece wages

= $190.40/800

For 100 pieces wages

= (190.40 / 800) x 100 = $23.80


2. Straight Piece of Rate

Per piece wages

= 160 / 640

= $0.25

For 800 pieces wages

= 800 x 0.25

= $200

Per 100 pieces wages

= (200 / 800) x 100

= $25


3. Halsey Premium Bonus System

Standard time for 640 pieces = 8 hrs.

Standard time for 1 piece = 8 / 640 hrs.

Standard time for 800 pieces = (8 x 800) / 640 = 10 hrs.

Time taken = 8 hrs.

Time saved or bonus hours = 10 - 8 = 2 hrs.

Formula for Halsey Premium Scheme

50% of time saved = 2 x (50 / 100) = 1 hour

Regular wages = $160.00

Bonus = (1 x 160) / 8 = $20.00

Total earnings = 160 + 20 = $180.00

Per 100 piece earnings = (180 / 800) x 100 = $22.50

Question 4

The time and motion study department of Moonlight Corporation has informed you that standard production on a specific item is 40 units per hour.

During the last week of December, a worker's record shows the following for each 8-hour day:

Monday

280 units

Tuesday

300 units

Wednesday

320 units

Thursday

Factory closed

Friday

360 units

Saturday

400 units

Required: Prepare a schedule showing the worker's daily earnings, the effective hourly rate, and the labor cost per unit under the following conditions:

  • Company uses the Halsey Premium Plan with a guaranteed rate of $1.00 per hour and a premium of 50% of the time saved on production in excess of standard.
  • Company uses Tailor's Differential Piece Rate System with rates as follows: for standard production and above, 4 cents per unit; and below standard production, 3 cents per unit.
  • Company uses 100% Bonus Plan and the base wage is $1.50 per hour.

Solution

Labor Cost Solution

Labor Costing: Practical Questions With Answers FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.