Wheeler Company, a small supplier of computer parts, is currently producing a new computer sensory unit....

 

Transcribed Image Text:

Wheeler Company, a small supplier of computer parts, is currently producing a new computer sensory unit. The company has been producing 150 units per week and factory overhead (all fixed) was estimated to be $1,200 per week. The following is a schedule of the pay rates of three workers assigned to the new component: Employee Clancy, D Lukan, T Schott, J Hourly rate $6.00 8.00 7.00 Customers have been calling in for additional units, but management does not want work to exceed 40 hours per week. To motivate its employees to produce more, the company decided to institute an incentive wage plan. Under the plan, cach worker would be paid a base rate per hour, as shown in the following schedule, and a premium of $1 per unit for all units when the total number exceeds 150. Employee Clancy, D Lukan, T Schott, J Base rate $3.50 5.50 4.50 Page 3 of 4 ACCOUNTANCY AND AUDITING, PAPER-I The first week the plan was put into operation, production increased to 165 units. The shop superintendent studied the results and considered the plan too costly. Production had increased 10%, but the labour cost had increased by approximately 23.2%. The superintendent requested permission to redesign the plan to make the labour cost increase proportionate to the productivity increase. Required: (a) (b) Calculate the dollar amount of the 23.2% labour cost increase. Give an opinion, supported by figures, as to whether the shop superintendent was correct in assuming that the incentive wage plan was too costly, and discuss other factors to be considered. (10) (10) (20) Wheeler Company, a small supplier of computer parts, is currently producing a new computer sensory unit. The company has been producing 150 units per week and factory overhead (all fixed) was estimated to be $1,200 per week. The following is a schedule of the pay rates of three workers assigned to the new component: Employee Clancy, D Lukan, T Schott, J Hourly rate $6.00 8.00 7.00 Customers have been calling in for additional units, but management does not want work to exceed 40 hours per week. To motivate its employees to produce more, the company decided to institute an incentive wage plan. Under the plan, cach worker would be paid a base rate per hour, as shown in the following schedule, and a premium of $1 per unit for all units when the total number exceeds 150. Employee Clancy, D Lukan, T Schott, J Base rate $3.50 5.50 4.50 Page 3 of 4 ACCOUNTANCY AND AUDITING, PAPER-I The first week the plan was put into operation, production increased to 165 units. The shop superintendent studied the results and considered the plan too costly. Production had increased 10%, but the labour cost had increased by approximately 23.2%. The superintendent requested permission to redesign the plan to make the labour cost increase proportionate to the productivity increase. Required: (a) (b) Calculate the dollar amount of the 23.2% labour cost increase. Give an opinion, supported by figures, as to whether the shop superintendent was correct in assuming that the incentive wage plan was too costly, and discuss other factors to be considered. (10) (10) (20)