Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for Labour Bonus Incentive Rowan Scheme (Kaplan Ch19)
 This topic has 10 replies, 3 voices, and was last updated 6 years ago by John Moffat.

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August 1, 2016 at 8:54 am #330595kirit
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 Replies: 33
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Morning John and fellow forum member,
I’m come across the following question and am once again very confused. It is as follows:
An employee receives a bonus according to the Rowan scheme.
The employee’s basic rate of pay is $6 per hour.
The allowed time for the job was 1 hour and the employee completed it in 40 minutes.
What was the total payment for the job (to the nearest cent) ?My answer so far:
Rowan scheme: Bonus scheme = Time Taken / Time Allowed x Time Rate x Time SavedBonus=
6040= 20mins
40/60 x $6/60 x 20mins
0.66x 0.1 x 20mins =$1.33 (Bonus Rate)
Basic Rate= $6 per hr
Total Payment is therefore: $7.33However, the above is apparently wrong. The answer provided was $5.33
The following part was correct:
0.66x 0.1 x 20mins =$1.33 (Bonus Rate)
However, the basic rate was calculated as:
40/60 x $6 = $4I’ve never seen this done to the basic rate before. I wasn’t aware that this should be done to the basic rate, and I can’t see any indication in the question as to why this should be done to the basic rate.
I’ve always believe (perhaps incorrectly) that basic pay figure remains as it is, and is either added onto the overtime or the bonus premium to obtain the total amount.
I’m very confused and would be really grateful if you would kindly assist me, as once again I’ve unfortunately become very stuck. Thank you John.
August 1, 2016 at 1:43 pm #330671John MoffatKeymaster Topics: 57
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The basic pay is $6 per hour.
Since they only worked for 40 minutes (and there are 60 minutes in an hour) their basic pay is 40/60 x $6.
August 1, 2016 at 2:12 pm #330686kirit Topics: 22
 Replies: 33
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My apologies John,
I’m still very confused.
Am I wrong in assuming that the basic rate should remain at $6 an hour, regardless of the time spent on the job ?
My assumption was that the allowed time for the job was 1 hour (60 mins) but the employee completed the job in 40 mins and thus was awarded a bonus for the time saved in completing the job.
If the bonus premium is calculated as follows:
Rowan scheme: Bonus scheme = Time Taken / Time Allowed x Time Rate x Time SavedBonus=
6040= 20mins
40/60 x $6/60 x 20mins
0.66x 0.1 x 20mins =$1.33 (Bonus Rate)If this is added onto the basic rate of $6 an hour, then wouldn’t the total payment be:
$6+ $1.33 = $7.33
However, if I look at the answer you have kindly provided above:
The basic pay is $6 per hour.
Since they only worked for 40 minutes (and there are 60 minutes in an hour) their basic pay is 40/60 x $6.
It would almost appear as if the employee is “penalised” for completing the job in under an hour, as they have managed to complete the job in 40 minutes, as opposed to the standard time of 60 minutes ?
My apologies, I think I may have misunderstood the question, or the answer. I would be grateful for your clarification. Thank you.
August 1, 2016 at 5:23 pm #330713John MoffatKeymaster Topics: 57
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The basic pay is $6 per hour, but they will only ever be paid for the actual time worked (regardless of what the standard time is).
And I agree – the employee is effectively being penalised which is why the scheme in this question is rather ridiculous 🙂
August 1, 2016 at 5:41 pm #330721kirit Topics: 22
 Replies: 33
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I had to think about that question a bit more carefully and read the question more carefully.
I think I got quite confused with other similar question on bonus schemes with unit productions and basic rates.I’ve also realised that with all other questions that I have previously encountered, although there is a basic rate per hour, the employee has always worked the full hour, but has been more effective in terms of unit production whilst still working the full hour. Hence another reason for my confusion.
Thank you for your patience, and guidance in this question.
August 2, 2016 at 7:06 am #330779John MoffatKeymaster Topics: 57
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You are welcome 🙂
August 2, 2016 at 3:05 pm #330873jarju Topics: 0
 Replies: 6
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@Kirit
I had wanted to add some thoughts on your question…
If the bonus rate as you have rightly calculated to be as:
40/60 x $6/60 x 20mins = $1.33and not as
60/60 x 6/60 x 20mins = $2Therefore, the basic rate for working 40mins should be:
40/60 x $6 = $4and not
60/60 x $6 = $6 (which is the basic rate for working 60mins)I hope this helps.
August 2, 2016 at 3:39 pm #330885John MoffatKeymaster Topics: 57
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jarju: Please do not answer in this forum – it is Ask the Tutor and you are not the tutor (but please do help people in the general F2 forum) 🙂
Also, if you read my previous replies you will see that I have already explained that the basic rate for the work done is $4 and not $6 (and kirit understood my reply)!
August 2, 2016 at 4:15 pm #330891kirit Topics: 22
 Replies: 33
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Thank you both for your assistance. I’m grateful to you both.
Although I was certainly confused when working through the question, I feel a great deal clearer about the question now.
Thank you both once again for your guidance. It’s gratefully appreciated.
August 2, 2016 at 4:30 pm #330893jarju Topics: 0
 Replies: 6
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Forgive me Mr. John. This is my first time making a comment in this forum. I was expecting that whatever one comments it has to approved first by the tutor before it would be publish and seen by everyone. I will never repeat this again.
Thankyou.
August 3, 2016 at 7:30 am #331001John MoffatKeymaster Topics: 57
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No problem 🙂

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