Problem: Management of the Von Machine Company requests that you calculate the effect of two different wage payment plans upon employee earnings and also on the unit labor cost of Product A.
The following information is available:
1. The hourly rate is $9.00.
2. The labor rate per piece of Part X, if the employee is paid on a piece-rate basis, is $.30.
Ten pieces of Part X are required for one unit of Product A. The plant works a 6-day week and an 8-hour day, totaling 48 hours per week. No overtime premium pay is to be considered in your analysis.
During a selected week, the following pieces of Part X were produced:
Day Part X
Quantities Produced
1 150
2 200
3 240
4 180
5 300
6 200
An agreement with the union requires a minimum rate of $6.50 per clock hour be paid to employees.
A) Calculate the labor cost each day of the week for an employee under:
1. the hourly-rate plan.
2. the piece-rate plan.
B. If the company could anticipate a steady production level of 250 units of Part X each day, which plan would you recommend to the company's management? Why?