Evaluation of an incentive scheme XYZ Ltd is considering introducing an incentive scheme. Current production for the period is 100 units, and total wages paid are £600 for this production. Material costs are £5 per unit. Fixed overheads are £1000 for the period and the current selling price is £25.

Management decides to introduce a piecework system, paying £9 for each unit produced, based on an estimate that production for the period will double to 200 units.

Your managing director asks you to provide a financial evaluation of the scheme and to indicate any other factors which cannot be quantified but which may be affected by the introduction of the scheme.

LO1