- 6 Marks
Question
Amanda LTD – Day-Rate Incentive Scheme
Amanda LTD is a manufacturing company and its management is considering the introduction of a high day-rate incentive scheme. During one of such production periods, record shows that, if an employee makes 100 units in a 40-hour week, the employee is paid GH¢2 per hour, but if 120 units are made, the employee is paid GH¢2.50 per hour. Production overhead is added to cost at the rate of GH¢2 per direct labour hour.
Required:
i) What is the cost per unit for the low day-rate scheme?
ii) What is the cost per unit for the high day-rate scheme?
Answer
i) Low Day-Rate Scheme
- Total direct labour cost = 40 hours × GH¢2 = GH¢80
- Production overhead = 40 hours × GH¢2 = GH¢80
- Total cost = GH¢80 + GH¢80 = GH¢160
- Cost per unit = GH¢160 / 100 units = GH¢1.60 per unit
ii) High Day-Rate Scheme
- Total direct labour cost = 40 hours × GH¢2.50 = GH¢100
- Production overhead = 40 hours × GH¢2 = GH¢80
- Total cost = GH¢100 + GH¢80 = GH¢180
- Cost per unit = GH¢180 / 120 units = GH¢1.50 per unit
- Tags: Cost Calculation, Day Rate Scheme, Incentive Scheme
- Level: Level 1
- Topic: Marginal Costing and Absorption Costing
- Series: Nov 2024
- Uploader: Salamat Hamid