HK manufacturing company is considering introducing a high day rate incentive scheme. An experiment with one of its average workers showed that an employee is likely to produce 1,500units in a 40hour week if she was paid GH¢25 per hour but 1800units if she was paid GH¢31.25 per hour.
Assume that production overhead is added to cost at the rate of GH¢25 per direct labour hour.
Required:
i) Determine the cost per unit of output on both the low day rate scheme and high day rate scheme. (3 marks)
View Solution
Cost per unit for low day rate
Cost per unit using High Day rate
ii) Is it advisable to introduce the high day rate scheme? (2 marks)
View Solution
The Company should introduce the scheme because unit cost falls by 6.4% ((GHS1.33 – GHS1.25)/1.25) x 100