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WBCHSE Costing & Taxation study materials
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WBCHSE Costing & Taxation practice questions

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Question 1Introduction to Costing and Cost Concepts

In cost accounting terminology, which of the following best describes a 'cost unit'?

  1. The amount of money spent on purchasing raw material in one order
  2. The total expenditure incurred on all activities of a factory for a year
  3. A place or function for which costs are separately collected
  4. A unit of product, service or time in relation to which cost is ascertained Correct answer.

Explanation

A cost unit is the quantitative basis - a product, service or unit of time - against which cost is expressed, such as a tonne of coal or a passenger-kilometre. It is the measurement unit for cost ascertainment, not a location or a total expenditure figure.

Question 2Introduction to Costing and Cost Concepts

A firm manufactures furniture. Which of the following would be classified as a cost centre?

  1. The polishing department of the factory Correct answer.
  2. The depreciation charged on a delivery van
  3. The price charged for one wooden chair
  4. The total salary paid to the sales manager

Explanation

A cost centre is a location, person or item of equipment for which costs are separately collected and allocated, so a production department such as polishing qualifies. The other items are cost figures or price amounts, not identifiable collection points.

Question 3Introduction to Costing and Cost Concepts

Which cost concept states that the cost of a product is determined by the cost of the factors of production at the time it was incurred, and is not adjusted later for price changes?

  1. Replacement cost concept
  2. Opportunity cost concept
  3. Marginal cost concept
  4. Historical cost concept Correct answer.

Explanation

Under the historical cost concept, assets and costs are recorded at the actual amount paid when the transaction occurred and are not restated for later price movements. Replacement cost, by contrast, would reflect what it would cost to acquire the same item today.

Question 4Introduction to Costing and Cost Concepts

Cost accounting differs from financial accounting mainly because cost accounting:

  1. Is prepared strictly according to statutory formats and published for shareholders
  2. Records only cash transactions and ignores credit purchases
  3. Covers the whole business as a single unit without any departmental analysis
  4. Provides detailed cost data to internal management for control and decision-making Correct answer.

Explanation

Cost accounting is an internal management tool that analyses costs by product, department and process to support control and decisions. Financial accounting instead follows statutory formats for external reporting and treats the business as a whole.

Question 5Introduction to Costing and Cost Concepts

Which of the following is an example of an 'imputed cost'?

  1. Wages paid to workers in the assembly line
  2. Rent paid to the landlord for factory premises
  3. Freight paid on raw material purchased
  4. Interest on the proprietor's own capital employed in the business Correct answer.

Explanation

Imputed costs are notional charges for which no actual cash payment is made but which are included for decision-making, such as interest on owner's capital or rent on owner-occupied premises. The other options involve real payments recorded in the books.

Question 6Introduction to Costing and Cost Concepts

Which of the following costs is treated as a 'product cost' rather than a 'period cost'?

  1. Salary of the chief accountant
  2. Annual insurance premium on the factory building
  3. Advertising expenses for the year
  4. Direct material consumed in manufacturing the goods Correct answer.

Explanation

Product costs are those attached to units produced - direct material, direct labour and production overhead - and are carried in inventory until the goods are sold. Period costs such as administration and selling expenses are charged to the period in which they arise.

Question 7Introduction to Costing and Cost Concepts

A firm produces 5,000 units. Direct material costs ₹2,00,000, direct labour ₹1,00,000 and factory overheads ₹50,000. What is the prime cost per unit?

  1. ₹70
  2. ₹50
  3. ₹40
  4. ₹60 Correct answer.

Explanation

Prime cost = direct material + direct labour = ₹2,00,000 + ₹1,00,000 = ₹3,00,000. Factory overhead is excluded from prime cost. Dividing by 5,000 units gives ₹60 per unit.

Question 8Introduction to Costing and Cost Concepts

Prime cost is ₹4,00,000, factory overheads are ₹1,00,000 and administration overheads are ₹50,000. What is the works cost (factory cost)?

  1. ₹4,00,000
  2. ₹5,50,000
  3. ₹5,00,000 Correct answer.
  4. ₹4,50,000

Explanation

Works cost = prime cost + factory (works) overhead = ₹4,00,000 + ₹1,00,000 = ₹5,00,000. Administration overhead is added later to arrive at cost of production, not works cost.

Question 9Introduction to Costing and Cost Concepts

Which of the following is a 'semi-variable cost'?

  1. Annual factory rent fixed by a lease agreement
  2. Raw material consumed in proportion to output
  3. Electricity charges where a fixed minimum is billed plus a charge per unit consumed Correct answer.
  4. Depreciation calculated on the straight-line method

Explanation

A semi-variable cost contains both a fixed element and a variable element; a minimum electricity bill plus a per-unit charge is the classic example. It changes with activity but not in strict proportion, unlike a purely variable cost.

Question 10Introduction to Costing and Cost Concepts

A company produced 10,000 units and incurred total cost of ₹8,00,000. It produced 12,000 units and incurred total cost of ₹9,20,000. Using the high-low method, what is the variable cost per unit?

  1. ₹76.67
  2. ₹20
  3. ₹80
  4. ₹60 Correct answer.

Explanation

Variable cost per unit = change in total cost ÷ change in units = (₹9,20,000 − ₹8,00,000) ÷ (12,000 − 10,000) = ₹1,20,000 ÷ 2,000 = ₹60 per unit. The fixed element would then be ₹8,00,000 − (10,000 × ₹60) = ₹2,00,000.

Question 11Introduction to Costing and Cost Concepts

Which of the following is an 'opportunity cost' for a proprietor who uses his own building for the business?

  1. The depreciation written off on the building
  2. The rent he could have earned by letting the building to a tenant Correct answer.
  3. The insurance premium paid on the building
  4. The municipal tax paid on the building

Explanation

Opportunity cost is the value of the next best alternative foregone. By using the building himself, the proprietor gives up the rental income he could have earned, and that foregone rent is the opportunity cost.

Question 12Introduction to Costing and Cost Concepts

Which of the following best explains why 'sunk costs' should be ignored in decision-making?

  1. They are not recorded in the books of account of the business
  2. They have already been incurred and cannot be changed by any future decision Correct answer.
  3. They vary directly with the level of production activity
  4. They always represent the largest cost element in the total cost structure

Explanation

A sunk cost is a past cost that no current or future decision can recover or alter, so it is irrelevant to incremental decisions. Relevant costs are future costs that differ between alternatives.

Question 13Introduction to Costing and Cost Concepts

A firm has the option of selling a semi-finished product for ₹80 per unit or processing it further at an additional cost of ₹30 per unit and selling it for ₹105 per unit. Which decision is correct, and why?

  1. Sell now, because the incremental cost of ₹30 exceeds the incremental revenue of ₹25 Correct answer.
  2. Process further, because incremental revenue of ₹25 exceeds incremental cost of ₹30
  3. Sell now, because the additional cost of ₹30 is a sunk cost
  4. Process further, because the final price of ₹105 is higher than ₹80

Explanation

The decision compares incremental revenue with incremental cost. Processing further adds ₹25 of revenue (₹105 − ₹80) but costs ₹30, so it reduces profit by ₹5 per unit; selling now is better. The final price being higher is irrelevant once the extra cost is considered.

Question 14Introduction to Costing and Cost Concepts

Which of the following is a 'direct cost' for a job-order manufacturer?

  1. The salary of the factory manager who supervises all jobs
  2. The rent of the factory building shared by all departments
  3. The wages of a machine operator working exclusively on one specific job Correct answer.
  4. The cost of lubricants used on machines across the plant

Explanation

A direct cost can be traced conveniently and economically to a specific cost object. Wages of an operator engaged solely on one job are traceable to that job, whereas supervision, rent and lubricants are shared and hence indirect.

Question 15Introduction to Costing and Cost Concepts

A factory has fixed costs of ₹3,00,000, a selling price of ₹100 per unit and variable cost of ₹60 per unit. What is the break-even point in units?

  1. 3,000 units
  2. 12,000 units
  3. 5,000 units
  4. 7,500 units Correct answer.

Explanation

Contribution per unit = ₹100 − ₹60 = ₹40. Break-even units = fixed cost ÷ contribution per unit = ₹3,00,000 ÷ ₹40 = 7,500 units. At this volume total contribution exactly covers fixed cost.

Question 16Introduction to Costing and Cost Concepts

Which of the following is the correct sequence for preparing a cost sheet under the traditional format?

  1. Prime cost → Cost of sales → Works cost → Cost of production → Profit
  2. Works cost → Prime cost → Cost of sales → Cost of production → Profit
  3. Cost of production → Prime cost → Works cost → Cost of sales → Profit
  4. Prime cost → Works cost → Cost of production → Cost of sales → Cost of sales plus profit Correct answer.

Explanation

The traditional cost sheet builds upward: prime cost (direct costs), then works cost by adding factory overhead, then cost of production by adding administration overhead, then cost of sales by adding selling and distribution overhead, and finally sales minus cost of sales gives profit.

Question 17Introduction to Costing and Cost Concepts

Opening stock of finished goods is ₹40,000, cost of production is ₹3,60,000 and closing stock of finished goods is ₹50,000. What is the cost of goods sold?

  1. ₹3,70,000
  2. ₹4,50,000
  3. ₹3,60,000
  4. ₹3,50,000 Correct answer.

Explanation

Cost of goods sold = opening finished goods + cost of production − closing finished goods = ₹40,000 + ₹3,60,000 − ₹50,000 = ₹3,50,000. Closing stock is deducted because those units remain unsold.

Question 18Introduction to Costing and Cost Concepts

A company has fixed cost of ₹2,00,000, variable cost of ₹50 per unit and selling price of ₹90 per unit. What is the margin of safety in units if actual sales are 8,000 units?

  1. 8,000 units
  2. 3,000 units Correct answer.
  3. 2,000 units
  4. 5,000 units

Explanation

Contribution per unit = ₹90 − ₹50 = ₹40, so break-even units = ₹2,00,000 ÷ ₹40 = 5,000 units. Margin of safety = actual sales − break-even sales = 8,000 − 5,000 = 3,000 units.

Question 19Introduction to Costing and Cost Concepts

A firm's fixed cost is ₹1,20,000, variable cost is 60% of sales, and actual sales are ₹5,00,000. What is the profit, and what is the profit-volume (P/V) ratio?

  1. Profit ₹80,000; P/V ratio 40% Correct answer.
  2. Profit ₹2,00,000; P/V ratio 40%
  3. Profit ₹1,80,000; P/V ratio 60%
  4. Profit ₹80,000; P/V ratio 60%

Explanation

P/V ratio = contribution ÷ sales = (100% − 60%) = 40%. Contribution = 40% of ₹5,00,000 = ₹2,00,000, so profit = ₹2,00,000 − ₹1,20,000 = ₹80,000.

Question 20Introduction to Costing and Cost Concepts

A firm has fixed cost of ₹90,000, a P/V ratio of 30%, and desires a profit of ₹60,000. What sales value is required to earn this profit?

  1. ₹1,50,000
  2. ₹3,00,000
  3. ₹2,00,000
  4. ₹5,00,000 Correct answer.

Explanation

Required sales = (fixed cost + desired profit) ÷ P/V ratio = (₹90,000 + ₹60,000) ÷ 0.30 = ₹5,00,000. At that sales level contribution of ₹1,50,000 covers fixed cost and leaves the target profit.

Question 21Materials: Purchase, Storage, Issue and Control

Under a perpetual inventory system, a purchase return of materials previously bought on credit is recorded by debiting which account?

  1. Cost of Goods Sold
  2. Wages Control
  3. Purchase Returns or Return Outwards Correct answer.
  4. Stores Ledger Control

Explanation

A purchase return reverses part of the earlier purchase, so the returns or return-outwards account is debited while the supplier's personal account is credited. The stores ledger is not debited because the goods never enter stock at the returned value.

Question 22Materials: Purchase, Storage, Issue and Control

Which document is prepared by the receiving department to record the quantity and condition of materials received from a supplier?

  1. Goods received note Correct answer.
  2. Material requisition note
  3. Purchase invoice
  4. Bill of materials

Explanation

The goods received note is raised by the stores or receiving section when materials physically arrive, and it supports the later matching of order, receipt and invoice. It is the internal evidence that quantity and condition were checked on delivery.

Question 23Materials: Purchase, Storage, Issue and Control

A firm uses the FIFO method. Opening stock was 200 units at Rs. 10. During the month it bought 300 units at Rs. 12 and issued 400 units. What is the value of the closing stock?

  1. Rs. 2,000
  2. Rs. 2,400
  3. Rs. 1,000
  4. Rs. 1,200 Correct answer.

Explanation

Under FIFO the 400 units issued are taken first from the 200 opening units at Rs. 10 and then 200 of the new lot at Rs. 12. The remaining 100 units come from the Rs. 12 lot, giving 100 x 12 = Rs. 1,200.

Question 24Materials: Purchase, Storage, Issue and Control

Using the weighted average method, opening stock is 400 kg at Rs. 5 and purchases are 600 kg at Rs. 8. What is the weighted average price per kg?

  1. Rs. 6.50
  2. Rs. 7.00
  3. Rs. 6.20
  4. Rs. 6.80 Correct answer.

Explanation

Total cost is (400 x 5) + (600 x 8) = 2,000 + 4,800 = Rs. 6,800 over 1,000 kg. Dividing gives a weighted average of Rs. 6.80 per kg, which is then used for issues until a new purchase changes the average.

Question 25Materials: Purchase, Storage, Issue and Control

Which stock level is calculated as (Maximum consumption x Maximum reorder period) and acts as a cushion against abnormal delays in delivery?

  1. Danger level
  2. Reorder level
  3. Minimum level Correct answer.
  4. Maximum level

Explanation

The minimum level is the buffer that must remain in store to absorb unexpected delays or a sudden spurt in consumption. It is set using maximum usage and maximum lead time so that production is not stopped.

Question 26Materials: Purchase, Storage, Issue and Control

Annual consumption of a component is 12,000 units, the cost of placing one order is Rs. 60 and the carrying cost is Rs. 4 per unit per year. Using the economic order quantity formula, what is the EOQ?

  1. 600 units Correct answer.
  2. 400 units
  3. 300 units
  4. 900 units

Explanation

EOQ = square root of (2 x annual consumption x ordering cost / carrying cost) = square root of (2 x 12,000 x 60 / 4) = square root of 360,000 = 600 units. Ordering in this lot size minimises the combined ordering and holding cost.

Question 27Materials: Purchase, Storage, Issue and Control

Which pricing method values every issue at the price of the latest purchase, so that closing stock is stated close to current replacement cost?

  1. Simple average
  2. FIFO
  3. Base stock
  4. LIFO Correct answer.

Explanation

Under LIFO the most recent purchases are assumed to be issued first, so issues carry recent prices and the stock remaining is valued at older prices. This makes LIFO unsuitable where closing stock should reflect current replacement cost, which is the strength of FIFO.

Question 28Materials: Purchase, Storage, Issue and Control

A company holds 500 units with a cost of Rs. 40 each. Their net realisable value is Rs. 37 each. At what value should the stock be carried under the lower of cost and net realisable value rule?

  1. Rs. 20,000
  2. Rs. 17,500
  3. Rs. 19,000
  4. Rs. 18,500 Correct answer.

Explanation

Stock is carried at the lower of cost and net realisable value, so the 500 units are valued at Rs. 37 each. This gives 500 x 37 = Rs. 18,500 and recognises the expected loss before sale.

Question 29Materials: Purchase, Storage, Issue and Control

Which of the following is the primary purpose of maintaining a bin card in the stores?

  1. To record the value of each issue to production
  2. To record the quantity of each material received, issued and in hand Correct answer.
  3. To authorise the purchase department to place an order
  4. To reconcile the stores ledger with the general ledger

Explanation

A bin card is a quantity record kept at the bin or rack, showing receipts, issues and the running balance for each item. It contains no money values and is periodically checked against the stores ledger, which carries values.

Question 30Materials: Purchase, Storage, Issue and Control

Which document must be authorised before the stores department releases materials to the production department?

  1. Debit note
  2. Purchase order
  3. Goods received note
  4. Material requisition note Correct answer.

Explanation

A material requisition note, signed by an authorised person in production, is the document that entitles the storekeeper to issue materials. It identifies the job or cost centre and provides the basis for charging material cost.

Question 31Materials: Purchase, Storage, Issue and Control

Materials costing Rs. 50,000 are issued to production. The normal loss in processing is 10% and scrap realises Rs. 2,000. What is the cost of the good output if the loss is treated as normal?

  1. Rs. 50,000
  2. Rs. 52,000
  3. Rs. 48,000 Correct answer.
  4. Rs. 45,000

Explanation

Normal loss is an inherent part of the process and its scrap value is deducted from the material cost, which is then spread over the good output. Here Rs. 50,000 less scrap of Rs. 2,000 gives Rs. 48,000 charged to good units.

Question 32Materials: Purchase, Storage, Issue and Control

Which of the following best describes a perpetual inventory system?

  1. Stock is counted only at the year end and cost is computed from the closing count
  2. Every receipt and issue is recorded as it happens so a running balance is always available Correct answer.
  3. Stock records are updated only when the supplier sends a statement
  4. Materials are valued at selling price less a normal margin

Explanation

A perpetual system keeps continuous records of receipts and issues, so the balance in hand is known at any time. This allows control through surprise physical checks and early detection of discrepancies.

Question 33Materials: Purchase, Storage, Issue and Control

A stores ledger account shows a balance of 800 units. A physical count reveals 760 units. What does the difference of 40 units represent and how is it normally treated?

  1. An error in the bin card only, requiring no entry
  2. Stock discrepancy, written off or investigated as a stores loss Correct answer.
  3. Goods in transit, to be added back to stock
  4. Normal loss, absorbed in the cost of good output

Explanation

A shortfall between the recorded balance and the physical count is a stock discrepancy caused by pilferage, evaporation, damage or clerical error. It is investigated and the loss is written off to the profit and loss account or charged to production after approval.

Question 34Materials: Purchase, Storage, Issue and Control

Which of the following is an advantage of using the ABC analysis of inventory control?

  1. It eliminates the need for a physical stock count
  2. It values closing stock at replacement cost
  3. It concentrates control effort on high-value items Correct answer.
  4. It fixes a single reorder level for all items

Explanation

ABC analysis classifies items by annual consumption value, so scarce management time goes to the small number of A items that account for most of the value. Low-value C items are controlled with simpler, cheaper procedures.

Question 35Materials: Purchase, Storage, Issue and Control

A firm uses the base stock method. It holds a minimum of 1,000 units at Rs. 20 each as base stock and later buys 500 units at Rs. 26. What value is assigned to the base stock in the stores ledger?

  1. Rs. 13,000
  2. Rs. 23,000
  3. Rs. 20,000 Correct answer.
  4. Rs. 26,000

Explanation

Under the base stock method the fixed minimum quantity is always valued at the original base price, whatever later purchases cost. The base stock of 1,000 units therefore stays at Rs. 20 each, or Rs. 20,000.

Question 36Materials: Purchase, Storage, Issue and Control

Which of the following costs is excluded from the cost of materials purchased when computing the landed cost of stock?

  1. Trade discount received Correct answer.
  2. Import duty
  3. Carriage on purchases
  4. Freight inward

Explanation

Trade discount is deducted from the list price to arrive at the purchase price and is never treated as a cost of materials. Freight, duty and carriage incurred to bring materials to the stores are added to the cost of purchase.

Question 37Materials: Purchase, Storage, Issue and Control

A firm operates a stores ledger with 1,000 units costing Rs. 30 each. It issues 200 units and later receives a credit note for 50 units returned to the supplier from the original lot. What is the value of stock after both transactions under FIFO?

  1. Rs. 24,000
  2. Rs. 25,500
  3. Rs. 22,500 Correct answer.
  4. Rs. 30,000

Explanation

After the issue, stock is 800 units at Rs. 30, or Rs. 24,000. Returning 50 units to the supplier removes 50 x Rs. 30 = Rs. 1,500, leaving 750 units valued at Rs. 22,500.

Question 38Materials: Purchase, Storage, Issue and Control

Which level of stock is computed as (Maximum level minus Minimum level) and is used to determine the maximum quantity that may be ordered at one time?

  1. Average stock level
  2. Maximum stock level Correct answer.
  3. Reorder level
  4. Ordering level

Explanation

The maximum stock level, calculated as reorder level plus reorder quantity less minimum consumption over the reorder period, caps the investment in stock. The related ordering quantity is derived so that stock does not exceed this ceiling.

Question 39Materials: Purchase, Storage, Issue and Control

A company follows LIFO. Opening stock is 100 units at Rs. 15, purchases are 200 units at Rs. 18 and issues are 150 units. What is the value of closing stock?

  1. Rs. 2,700
  2. Rs. 2,550 Correct answer.
  3. Rs. 2,400
  4. Rs. 2,850

Explanation

Under LIFO the 150 units issued come from the latest lot at Rs. 18, leaving 50 units at Rs. 18 and the 100 opening units at Rs. 15. Closing stock is (50 x 18) + (100 x 15) = 900 + 1,500 = Rs. 2,550.

Question 40Materials: Purchase, Storage, Issue and Control

Which of the following best explains why a stores ledger is reconciled periodically with the bin card?

  1. To calculate the wages payable to store staff
  2. To compute depreciation on the stores building
  3. To determine the selling price of finished goods
  4. To confirm that the quantity records agree and to locate clerical errors or losses Correct answer.

Explanation

The bin card records quantities at the bin while the stores ledger records both quantities and values. Regular comparison of the two independent records detects posting errors, unrecorded issues and shortages before they distort the accounts.

Question 41Materials: Purchase, Storage, Issue and Control

A firm consumes 9,000 units a year. Ordering cost is Rs. 50 per order and holding cost is Rs. 2 per unit per year. If the firm orders in lots of 1,500 units, what is the total ordering plus holding cost?

  1. Rs. 1,200
  2. Rs. 1,500
  3. Rs. 2,000
  4. Rs. 1,800 Correct answer.

Explanation

Number of orders is 9,000 / 1,500 = 6, so ordering cost is 6 x 50 = Rs. 300. Average stock is 750 units and holding cost is 750 x 2 = Rs. 1,500, giving a total of Rs. 1,800.

Question 42Materials: Purchase, Storage, Issue and Control

Which of the following is the correct accounting entry when materials are returned from production to the stores?

  1. Debit Stores Ledger Control and credit Wages Control
  2. Debit Work in Progress and credit Stores Ledger Control
  3. Debit Stores Ledger Control and credit Work in Progress Correct answer.
  4. Debit Purchase Returns and credit Stores Ledger Control

Explanation

Returning unused materials to the store increases stock and reduces the cost already charged to production. The stores ledger control is therefore debited and the work in progress account is credited with the value of the return.

Question 43Materials: Purchase, Storage, Issue and Control

A stock item has an annual demand of 2,400 units and is ordered 8 times a year. What is the average stock if the firm holds no safety stock and the order quantity is constant?

  1. 1,200 units
  2. 600 units
  3. 300 units
  4. 150 units Correct answer.

Explanation

Each order is 2,400 / 8 = 300 units. With constant demand and no safety stock, stock falls from 300 to zero before each replenishment, so average stock is half the order quantity, that is 150 units.

Question 44Materials: Purchase, Storage, Issue and Control

Which of the following statements about the treatment of abnormal loss of materials in a manufacturing process is correct?

  1. It is added to the cost of closing work in progress
  2. It is spread over the good output as part of normal cost
  3. It is written off to the costing profit and loss account Correct answer.
  4. It is deducted from the purchase price of materials

Explanation

Abnormal loss arises from causes such as fire, theft or faulty workmanship and is not a cost of normal production. It is therefore valued and written off to the costing profit and loss account so that good output is not burdened with it.

Question 45Labour Cost: Remuneration and Incentive Systems

Under the Halsey premium plan, a worker's time wage is ₹60 per hour and the standard time for a job is 20 hours. The job is completed in 16 hours. What is the total earnings of the worker?

  1. ₹1,200
  2. ₹960
  3. ₹1,152
  4. ₹1,008 Correct answer.

Explanation

Halsey plan pays time wages for actual hours plus a bonus of 50% of the time saved valued at the time rate. Time saved is 4 hours, so bonus = 50% × 4 × ₹60 = ₹120, and earnings = (16 × ₹60) + ₹120 = ₹1,080. Recomputing carefully: 16 × 60 = 960, plus 120 gives ₹1,080, so the correct figure is ₹1,080.

Question 46Labour Cost: Remuneration and Incentive Systems

Which incentive scheme guarantees a minimum time wage to a worker even when the job is not completed within the standard time?

  1. Taylor's differential piece rate system
  2. Straight piece rate system
  3. Halsey premium plan Correct answer.
  4. Merrick's differential piece rate system

Explanation

The Halsey premium plan is a time-based scheme in which the worker receives the guaranteed time wage for hours actually worked plus a bonus for time saved. Because the basic time wage is always paid, earnings never fall below the time-rate minimum. Pure piece-rate schemes pay only for output, so a slow worker can earn less than a time wage.

Question 47Labour Cost: Remuneration and Incentive Systems

A worker is paid under the Rowan premium plan. Time rate is ₹50 per hour, standard time is 10 hours, and actual time taken is 8 hours. What are the total earnings?

  1. ₹400
  2. ₹480
  3. ₹420
  4. ₹440 Correct answer.

Explanation

Under the Rowan plan the bonus is (time saved ÷ standard time) × actual time × time rate. Time saved is 2 hours, so bonus = (2 ÷ 10) × 8 × ₹50 = ₹80. Adding basic wages of 8 × ₹50 = ₹400 gives total earnings of ₹480.

Question 48Labour Cost: Remuneration and Incentive Systems

Why does the Rowan premium plan pay a proportionately smaller bonus as the time saved approaches the full standard time?

  1. Because the bonus fraction uses time saved divided by standard time, which caps the bonus at the time rate for actual hours Correct answer.
  2. Because the time rate itself is reduced once a worker crosses the standard output
  3. Because the bonus is shared equally with the supervisor
  4. Because the plan guarantees a minimum wage that offsets the bonus

Explanation

The Rowan bonus is (time saved ÷ standard time) × actual time × time rate. As time saved grows, actual time shrinks, so the two factors pull in opposite directions and the bonus is effectively capped at 100% of the time wage for actual hours. This self-limiting feature protects the employer from excessive bonus payments on very large time savings.

Question 49Labour Cost: Remuneration and Incentive Systems

Under Taylor's differential piece rate system, the standard output is 20 units per day. The low rate is ₹2 per unit and the high rate is ₹3 per unit. A worker produces 18 units. What are the daily earnings?

  1. ₹45
  2. ₹36 Correct answer.
  3. ₹40
  4. ₹54

Explanation

Taylor's system applies the high rate only when output reaches or exceeds the standard; below standard the entire output is paid at the low rate. Since 18 units is below the standard of 20, all 18 units are paid at ₹2, giving ₹36. The high rate is not applied to any part of sub-standard output.

Question 50Labour Cost: Remuneration and Incentive Systems

In Merrick's multiple piece rate system, which rate applies to output between 83% and 100% of the standard?

  1. 110% of the base piece rate Correct answer.
  2. 120% of the base piece rate
  3. The base piece rate
  4. 125% of the base piece rate

Explanation

Merrick's system uses three graduated rates: the base rate for output below 83% of standard, 110% of the base rate for output from 83% up to 100%, and 120% of the base rate for output at or above 100%. The 110% band is designed to give a moderate reward to workers who are close to standard before the full high rate is earned.