Labour Costs and Remuneration Methods

Illustration Current scheme: $7/hour, 40 hour week. Overtime premium = time and a half. Usually 400 units are produced in 50 hours Proposed scheme: rates as above, but in addition the overtime premium is paid on any hours saved. Assume that 50 units are now made in 44 hours Possible results: Hours saved = 50 – 44 = 6 Weekly wages = 44 x $7 +4 x $3.5 + 6 x $3.5 = 343 Cost per unit = 343/400 = 0.8575 Why are we multiplying both the regular overtime and the premium overtime by $3.50? Should we not be working the regular overtime at the $3.50 and the Overtime premium by the $7.00 ?