Piece Wage System | Accounting for Labour | Problems and Solutions

 

 

Piece Wage System

This method is also called the piece rate system.

Under this system, wages are fixed at a specific rate per unit.

Workers receive wages on the basis of their ability, energy and speed of work.

Wage rate is per meter, piece, kg, quintal, ton, square feet/meter, cubic feet/ meter etc. 

It is applied where:

·        Quality of work is not more important e.g. mining, bricks, plugging etc.

·        Measurement of work is direct labour basis or unit basis

·        Work demands a low degree of skill.

·        Job rate can be fixed

 

Straight piece work system

Under this, wages are depended on the quantity of output.

A single piece rate is used for wages.

Per piece, wage rate is fixed in advance.

Skilled workers get more wages than an unskilled worker.

 

 

 

 

Formula of piece wage system 

Total wage earned	= Produced units x Wage rate per unit
Where:
Standard output per hour	= Second in an hour ÷ Seconds need per unit
Or	= Minutes in an hour ÷ Minutes need per unit
Wage rate per unit	= Wage per hour ÷ Output per hour
Or	= Wage per day ÷ Output per day

 

 

Advantage (merits) of piece wage system

The main advantages of the piece rate system are:

It is an improvement of the time wage system.

Unskilled, semi-skilled and skilled labour can earn according to their capacity.

An increase in production reduces the fixed cost per unit.

Wages for idle time is not paid in this system.

Unskilled workers are motivated to be skilled.

Less supervision is required.

 

Disadvantage (demerits) of piece wage system

The main disadvantages of the piece rate system are:

It is difficult to fix a suitable piece work rate.

Unskilled workers will be frustrated due to fewer wages.

It is not suitable for the quality product because ‘haste makes waste.’

Increase production will not decrease cost.

Workers may work more hours to earn more wage, thus they lose their health.

 

 

Difference between Time Rate and Piece Rate System of Wage Payment

Bases	Time rate system	Piece rate system
Base	Wages are based on the time worked.	Wages are based on unit produced.
Efficiency	Wages are not linked with the efficiency of the workers.	Wages are directly linked with the efficiency of the workers.
Supervision	Supervision for quality work is not needed.	Supervision is required for quality work.
Wastage	There is less chance of wastage of material.	There is a high chance of wastage of materials.
Cost	The cost of production can be not be minimized.	The cost of production can be minimized.
Wages fix	Easy to fix wage rate.	It is not easy to fix the wage rate.

 

 

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Fringe Benefits

Most of the company provides its employees extra benefits to encourage them.

There are two types of benefits or expenses.

One is monetary and the other is a non-monetary expense.

Monetary expenses are paid in cash but non-monetary expenses are not paid in cash.

 

Monetary benefits	Non-monetary (non-pecuniary) Benefits
Pecuniary benefits	Medical facilities
Wages and salaries	Entertainment
Dearness allowance	Educational
Home allowance or house rent allowance	Training facilities
Overtime pay	Subsidized canteen facilities
Holiday and vacation pay	Subsidized transportation
An incentive for targeted/ standard production	Subsidized housing
Profit-sharing bonus etc.	Re-creation and sports facilities
Deferred monetary benefits	Leave facilities etc.
Contribution for provident fund
Contribution for group insurance
Contribution for pension fund etc.

 

 

 

Keep in Mind (KIM)

There are other some special allowances and incentives such as chairman allowance, audit allowance and night shift allowance etc.

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2A

Extracted data are taken from RS Furniture Industries:

Small tables made by a carpenter during a month	15 pieces
Straight piece rate per table	Rs 500

Required:   (a) Wage earned during a month; (b) No. of tables table if carpenter has earned Rs 10,000

[Answer: (a) Rs 7,500; (b) 20 tables]

Solution:

Wage earned during a month

Total wage earned	=	No. of units × Wage rate per unit
	=	15 tables × Rs 500
	=	Rs 7,500

 

Piece rate per table if he has earned Rs 10,000

Total wage earned	=	Produced units x Wage rate per unit
10,000	=	No. of table x Rs 500
No. of table	=	10,000 ÷ 500
	=	20

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2B

Extracted data are taken from ABC Book Binders:

Standard time allowed for per unit	10 minutes
Wage rate per hour	Rs 30
Units made by worker A during a month	6,200 units
Units made by worker B during a month	5,000 units

Required: Total wage earned by each worker

[Answer: Total wages: A = Rs 31,000; B = Rs 25,000]

SOLUTION

Given and working note:  

Standard output per hour = 60 minutes ÷ 10 minutes = 6 units

Wage rate per unit = Rs 30 ÷ 6 units = Rs 5

 

Total wage earned by each worker

Total wage earned	= No. of units x Wage rate per unit
Worker A	= 6,200 units x Rs 5	= Rs 31,000
Worker B	= 5,000 units x Rs 5	= Rs 25,000

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2C

The following information of BC Manufacturing Company is given to you:

Normal wage rate per hour	Rs 66
Normal time allowed per units	30 second
Normal working hour per day	8 hours

Units produced during one day by worker A = 960 units and B = 1,000 units

Required:   (a) Standard output per hour; (b) Wages rate per unit of output; (c) Wage earned by each worker        

 [Answer: (a) Standard output: Per hour = 120 units; per day = 960 units;

(b) Wage rate per unit = Rs 0.55; (c) Total wage: A = Rs 528; B = Rs 550]

SOLUTION:

Given and working note:

30 second = 0.5 minute

1 unit requires = 0.5 minute

1 hour = 60 minutes

8 hours (8 hours x 60 minute) = 480 minutes

 

Standard output per hour   

In 0.5 minute, unit produced	= 1 unit
In 1 hour (60 minutes), units produced	= 60 ÷ 0.5	= 120 units
In 8 hours (480 minutes), units produced	= 480 ÷ 0.5	= 960 units

 

 

Wages rate per unit (WRPU)

= Rs 66 per hour ÷ 120 units per hour   

= Re 0.55

 

 

Wage earned by each worker

Total wages	= Produced units x WRPU
A	= 960 units x Re 0.55	= Rs 528
B	= 1,000 units x Re 0.55	= Rs 550

 

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PROBLEMS  AND  ANSWERS  OF  PIECE  RATE  SYSTEM

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2A 

Amir works in a carpet factory and produced 10 carpets in a month. According to the rule of the factory wage payable to workers is Rs 800 per piece of carpet produced.

Required: Wage earned for the month

[Answer: Total waged = Rs 8,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2B 

The following information is given relating to wages:

          Output produced by worker: 600 units

          Time allowed for 5 units of output: 1 hour

          Wages rate per hour: Rs 120

Required: Wage amount of the worker

[Answer: Wages = Rs 14,400]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2C

The following information is given relating to wages:

          Wages rate per hour: Rs 90

          Time required per unit of output: 30 minutes

          Output produced by worker: 500 units

Required: Wage amount of the worker

[Answer: Wages = Rs 22,500]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2D

The time allowed to produce 20 units of output is 1 hour.

A worker produced 2,000 units during the month.

The fixed wage per hour is Rs 90

Required: Wages of the worker for the month

[Answer: Wages = Rs 9,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2E

The following information is given:

          Standard output per hour: 10 units

          Wage rate per unit: Rs 25

          Actual worked hour: 40 hours

Required: Total wage of the worker

[Answer: Wages = Rs 10,000]

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2F

The following information is given relating to wages:

          Output per hour: 4 units

          Wage rate per unit: Rs 10

          Working time for a month: 200 hours

Required: Total wage for the month

[Answer: Wages = Rs 8,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 2G

The following information of JK Manufacturing Company is provided to you:

Normal time per unit	10 minutes
Normal wage rate per hour	Rs 60
Units produced by A	600 units
Units produced by B	750 units

Required:   (1) Wage rate per unit; (2) Total wage earned by A and B

[Answer: A’s earning = Rs 6,000; B’s earning = Rs 7,500]

*WRPU = Rs 60 ÷ 6 units = Rs 10

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