Page 131 - CalcBus_Flipbook

CH 14] Calculating Business 14-5

(b) The production standard was exceeded. Therefore:

$21.50 guaranteed hourly wage
+ 4.30 bonus wage (20% of $21.50)
$25.80 hourly wage at or above 100% efficiency
x 8 hours worked
$206.40 earnings

(c) The production standard was exceeded. Therefore, the pay is
$206.40, the same as in (b) above.

Extra Production Premium. What is the incentive with Efficient Production Bonus for
time to increase production over 100% as producing 43 units receives the same hourly wage
as producing 42 units? Note that employees do talk about their wages amongst themselves
and do plan to produce the minimum necessary to receive the higher pay rate.
Employees do want to advantage themselves when it comes to pay, and like it or not,
they do compete with each other. In the auto repair business rate books are printed on what
to charge customers based on the job and a predetermined amount of time to perform a task
such as replacing a defective water pump. Presume that the repair shop charges $75 per
hour for this task based on the book rate of 90 minutes to remove and replace the water
pump for a specific manufacturer’s year, make and auto model. The mechanic on the job is
paid from the charges made by the repair shop and paid by the customer. If the mechanic
can perform the job in 45 minutes, because he is more efficient, than the stated 90 minutes
in the rate book, he then has the opportunity to move to another repair job and increase his
gross wages and as such is earning an Extra Production Premium.
In addition to being paid a guaranteed hourly wage for producing the standard quota of
units, the employee is also paid at the same rate for producing extra units within the
standard work period, increased productivity; increased efficiency. The standard work
period may be an hour, a day, or a week. The employee receives a production premium for
saving time within the work period, time that is used to produce extra units. If production
does not equal or exceed the quota, only the standard wage is paid, be that hourly, daily or
weekly. Premium pay is based on the following equation:
14
Premium Pay = Extra Units x Standard Pay
Quota Units

Example: Doreen Hopkins’ daily production quota calls for 96 units during her 8-hour
workday for which she is paid $15.25 an hour. In an 8 hour day Doreen will
earn (8 x $15.25 =) $122.00. She receives a premium for the extra units
produced during a shift. Calculate her gross pay for (a) a shift during which
she produced 95 units and (b) another shift when she produced 114 units.

Solution algorithm: (a) Units produced do not exceed the quota of 96. Therefore, she
receives her standard daily pay at (8 hrs x $15.25 =) $122.00.

(b) Units produced do exceed the 96 quota. Therefore:
Excess Units = Total Production — Quota production
= 114 — 96
Excess Units = 18

18 (extra) x $122.00 (standard pay) = $22.88 premium pay
96 (quota)

Total pay for shift: $122.00 + $22.88 = $144.88

Variations of these wage incentive systems have been devised and used effectively for
the business and industry that have adopted them as a standardized method of payment for
employees.

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