CA Inter P4 · Chapter 3
Employee Cost and Direct Expenses MCQs with Answers
11 multiple-choice questions on Employee Cost and Direct Expenses for CA Inter P4 Cost and Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
The standard time for a job is 40 hours and a worker completes it in 30 hours. The guaranteed time rate is ₹80 per hour. Total earnings of the worker under the Halsey premium plan (50% bonus) are:
- A) ₹2,800
- B) ₹3,000
- C) ₹3,200
- D) ₹2,400
Show answer & explanation
Answer: A) ₹2,800
Time wages = 30 hours x ₹80 = ₹2,400. Time saved = 40 - 30 = 10 hours. Halsey bonus = 50% x 10 x ₹80 = ₹400. Total earnings = ₹2,400 + ₹400 = ₹2,800.
Question 2
Using the same data (standard time 40 hours, time taken 30 hours, rate ₹80 per hour), total earnings under the Rowan plan are:
- A) ₹2,800.00
- B) ₹3,200.00
- C) ₹3,000.00
- D) ₹3,466.67
Show answer & explanation
Answer: C) ₹3,000.00
Rowan bonus = (time saved / standard time) x time taken x rate = (10/40) x 30 x ₹80 = ₹600. Total earnings = time wages ₹2,400 + bonus ₹600 = ₹3,000. Note that the Rowan bonus here exceeds the Halsey bonus because time saved is less than 50% of standard time.
Question 3
Earnings of a worker under the Halsey (50%) plan and the Rowan plan will be the same when the time taken is:
- A) Exactly 50% of the standard time
- B) Exactly 75% of the standard time
- C) Exactly 66.67% of the standard time
- D) Exactly 25% of the standard time
Show answer & explanation
Answer: A) Exactly 50% of the standard time
Halsey bonus = 0.5 x (S - T) x R and Rowan bonus = ((S - T)/S) x T x R. Equating them gives 0.5 = T/S, so T = 50% of S. When time taken is more than half the standard time, Rowan pays more; when it is less than half, Halsey pays more.
Question 4
Under Taylor's differential piece rate system, the standard output is 50 units per day and the normal piece rate is ₹12 per unit. A low rate of 83% of the piece rate applies below standard and a high rate of 125% applies at or above standard. A worker produces 48 units in a day. His earnings for the day are:
- A) ₹576.00
- B) ₹478.08
- C) ₹720.00
- D) ₹498.00
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Answer: B) ₹478.08
Output of 48 units is below the standard of 50 units, so the low rate applies: 83% x ₹12 = ₹9.96 per unit. Earnings = 48 x ₹9.96 = ₹478.08. Taylor's plan penalises workers falling short of standard, which is why it is criticised as harsh.
Question 5
A factory had 760 workers at the beginning of the year and 840 at the end. During the year 48 workers left and 128 workers joined, of whom 40 were replacements. The labour turnover rate under the separation method is:
- A) 6%
- B) 5%
- C) 5.71%
- D) 22%
Show answer & explanation
Answer: A) 6%
Average number of workers = (760 + 840) / 2 = 800. Separation rate = separations / average workers x 100 = 48 / 800 x 100 = 6%. Using closing workers (840) as the base is incorrect.
Question 6
Using the same data (opening 760, closing 840, separations 48, total accessions 128 of which 40 were replacements), the labour turnover rate under the replacement method is:
- A) 6%
- B) 16%
- C) 5.26%
- D) 5%
Show answer & explanation
Answer: D) 5%
Replacement method = number of replacements / average number of workers x 100 = 40 / 800 x 100 = 5%. Workers recruited for expansion (88) are not replacements and are excluded.
Question 7
Overtime premium paid because a customer asked for urgent completion of his particular order should be:
- A) Treated as general factory overhead
- B) Charged to the Costing Profit and Loss Account
- C) Charged directly to that customer's job
- D) Spread over all jobs as part of the labour rate
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Answer: C) Charged directly to that customer's job
When overtime is worked at the specific request of a customer, the premium is caused by that job and is charged directly to it. Overtime premium arising from general pressure of work is treated as production overhead, while premium due to abnormal causes (such as a breakdown) goes to the Costing Profit and Loss Account.
Question 8
Idle time caused by a prolonged strike in the factory should be treated as:
- A) Part of direct employee cost of the products
- B) A charge to the Costing Profit and Loss Account
- C) Factory overhead absorbed by production
- D) An addition to the hourly rate of the workers
Show answer & explanation
Answer: B) A charge to the Costing Profit and Loss Account
A prolonged strike is an abnormal cause of idle time. Abnormal idle time cost is not included in the cost of production; it is transferred to the Costing Profit and Loss Account. Normal idle time (for example time taken to move between jobs) is absorbed through the employee cost rate or factory overheads.
Question 9
A worker is paid ₹520 per day of 8 hours for 6 days a week for 52 weeks, including 12 paid holidays and 15 days of paid leave. The employer contributes 12% of wages towards provident fund. Normal idle time is 5% of hours available for work. The effective employee cost per productive hour (rounded to two decimals) is:
- A) ₹79.70
- B) ₹74.90
- C) ₹83.89
- D) ₹72.80
Show answer & explanation
Answer: C) ₹83.89
Annual cost = 312 days x ₹520 = ₹1,62,240 plus PF 12% = ₹1,81,708.80. Days available for work = 312 - 12 - 15 = 285; hours = 285 x 8 = 2,280; less 5% normal idle time = 2,166 productive hours. Effective rate = ₹1,81,708.80 / 2,166 = ₹83.89 (rounded). Ignoring idle time gives ₹79.70.
Question 10
Which of the following is an example of a direct expense?
- A) Rent of the factory building
- B) Salary of the works manager
- C) Royalty paid to the patent holder on each unit produced
- D) Depreciation of office furniture
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Answer: C) Royalty paid to the patent holder on each unit produced
Direct expenses are expenses, other than direct material and direct employee cost, that can be identified with a specific cost object in an economically feasible way. Royalty based on units produced is directly traceable to the product. Factory rent and works manager's salary are production overheads, and office depreciation is an administrative overhead.
Question 11
Under Merrick's multiple piece rate system, the normal piece rate is paid up to 83% efficiency, 110% of the piece rate between 83% and 100% efficiency, and 120% of the piece rate above 100% efficiency. Standard output is 200 units per day and the piece rate is ₹10. A worker producing 190 units in a day earns:
- A) ₹1,900
- B) ₹2,280
- C) ₹2,200
- D) ₹2,090
Show answer & explanation
Answer: D) ₹2,090
Efficiency = 190 / 200 = 95%, which lies between 83% and 100%, so 110% of the piece rate applies: ₹10 x 110% = ₹11 per unit. Earnings = 190 x ₹11 = ₹2,090.