Intermediate: Preparation of the wages control account plus an evaluation of the impact of a proposed piecework system One of the production departments in A Ltd’s factory employs 52 direct operatives and 9 indirect operatives. Basic hourly rates of pay are £4.80 and £3.90 respectively. Overtime, which is worked regularly to meet general production requirements, is paid at a premium of 30% over basic rate.

The following further information is provided for the period just ended:

The senior management of A Ltd are considering the introduction of a piecework payment scheme into the factory. Following work study analysis, expected productivities and proposed piecework rates for the direct operatives, in the production department referred to above, have been deter¬ mined as follows:

Non-productive time is expected to remain at 10% of productive time, and would be paid at £3.50 per hour.
Required:

(a) Prepare the production department’s wages control account for the period in A Ltd’s integrated accounting system. (Ignore employers’ National Insurance.) (9 marks)

(b) Examine the effect of the proposed piecework payment scheme on direct labour and over¬ head costs.

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Hours worked: Direct operatives: Total hours worked Overtime hours worked Indirect operatives: Total hours worked Overtime hours worked Production: Product 1, 36 000 units in 7200 hours Product 2, 116000 units in 11 600 hours Product 3, 52 800 units in 4400 hours Non-productive time: Wages paid (net of tax and employees' National. Insurance): Direct operatives Indirect operatives 25 520 hours 2120 hours 4430 hours 380 hours 2320 hours 97955 13 859