Incentive Wage Plan Evaluation. Hughes Company, a relatively small supplier of computer parts, is cur¬ rently engaged in producing a new component for the computer sensory unit. The company has been pro¬ ducing 150 units per week and factory overhead (all fixed) was estimated to be $1,200 per week. The following is a schedule of the pay rates of three workers assigned to the new component: LO3 Employee Hourly Rate Clancy,D. $6.00 Luken,T. 8.00 Schott,J. 7.00 Customers have been calling in for additional units, but management does not want work to exceed 40 hours per week. To motivate its workers to produce more, the company decided to institute an incentive wage plan. Under the plan, each worker would be paid a base rate per hour, as shown in the following schedule, and a premium of $1 per unit for all units when the total number exceeds 150.

Employee Base Rate Clancy,D. $3.50 Luken,T. 5.50 Schott,J. 4.50 The first week the plan was put into operation, production increased to 165 units. The shop superintendent studied the results and considered the plan too costly. Production had increased 10%, but the labor cost had increased by approximately 23.2%. The superintendent requested per¬ mission to redesign the plan in order to make the labor cost increase proportionate to the productiv¬ ity increase.

Required:

(1) Calculate the dollar amount of the 23.2% labor cost increase.

(2) Give an opinion, supported by figures, as to whether the shop superintendent was correct in assuming that the incentive wage plan was too costly, and discuss other factors to be considered.