Meaning of Piece Wage Rate Method
Meaning of Piece Wage Rate Method Under piece rate method, the wages are paid on the basis of quantity of output not taking into account the time involved.
A rate is fixed per unit of production or according to work done. Thus it is known as piece wage rate method. In brief, under Piece Wage Rate method, the wages are calculated by the following formula:
Gross Wages= Units Produced Wages Rate per Unit
The piece rate can be fixed by determining the time required to complete a piece. This can be done from past experience or estimation or time and motion study.
In case the job is new, a few trial runs can enable fixation of piece rates. After this, the time is correlated to the wage rate of determine the piece rate
Example: If rate per unit is Rs. 40 and during a day a worker has completed 3 units, his wages will be Rs. 120 and if he has completed 6 units, his wages will be Rs. 240. Similarly if he is not produced any unit, he will get nothing.
Thus under this method, a worker can earn according to his health, strength and ability.
1. Personal piece wage rate method: When each worker is paid at the rate of per unit or per piece of production, it is known as personal piece wage rate system.
2. Group piece wage rate method: In this method, workers are paid on the basis of group because of job is completed by them with common efforts.
After that the worker related to that group can divide the wages on agreed ratio. Generally time earning is the basis of division. It is calculated multiply total hour worked by hour rate.
Advantages of Piece Wage Rate Method
Piece wage rate system has the following advantages:
1. Increase in production: Each worker tries his best to produce so as to earn higher wages. This results in increase in production and idle time automatically controlled. Thus piece rate acts as incentive to induce the workers to produce more.
2. Encouragement to worker: There is inducement or encouragement to average workers also to produce more and earn more wages.
3. Incentive to efficient workers: As remuneration is in proportion to the workers efforts, the method provides a strong incentive to work more Thus the reward is related to effort. In other words, it distinguish between efficient and inefficient workers.
4. Low supervision cost: Strict supervision is not necessary because the workers are themselves interested in maximizing their earnings through the maximization of output.
Thus supervision can be reduced as workers are paid according to performance. Therefore, supervision cost will be low.
5. Precaution in use of tools: Tools and machinery are taken care of by the workers as they are aware that the defects or break down will reduce their chances of higher production and higher wages.
Disadvantages Piece Wage Rate Method
Piece rate method suffers from the following limitations-
1. Poor quality of work: This method lays too much emphasis on quantity of production and ignores quality of work. In order to maximize their wages, workers try to produce more and more without caring for the quality of production.
2. Injurious to health: In an effort to earn higher wages, workers try to work excessively with speed. It may cause more accidents and undue hare and strain may prove injurious to the health of workers.
3. Discontent: This system creates inequality in the wages of workers. Slow and inefficient workers feel jealous of the higher wages of their follow workers.
4. Rivalry: It makes under discrimination between efficient and.
5. Uncertainty of income: The system does not guarantee a minimum inefficient worker and thus create rivalry. wages to workers.
If a worker is not able to complete his day’s work for any reasons, he is paid less wages. Thus earnings of workers are uncertain
Suitability- Conditions under which piece rates may be usefully employed are:
1. Where production is standardized or repetitive in nature.
2. Where effective and close supervision is not possible.
3. Where the output of workers can be measured.
4. Quality consideration are less important than quantity output.
Classification of Piece wage rate system
Piece wage rate system can be classified into three parts.
1. Straight piece rate method: This method pays to a workman for each item produced or wages = no. of units produced piece rate per unit.
2. Piece rate with guaranteed day rate method: Under this case, a minimum wage based on time rate for hours is guaranteed. When the piece rate canings are less than time rate earnings, the worker will be paid at the time rate earnings.
In other words, the worker will be paid time rate earnings or piece rate earnings whichever is higher.
3. Differential piece rate method: Efficient and inefficient workers are distinguished. More than one piece rate is determined. Standards are set for each operation or job. Efficient workers. those who attain the standard set are given a higher rate and inefficient ones are given a lower rate.
As the level of output increases the piece rate also, therefore, this ratio may be proportionate or proportionately less or more than the increase in output. Hence output is maximized.
Difference Between Time Wage Method and Piece Wage Method
Time Wage Method
|Piece Wage Method|
|Base||Worker is paid on the basis of time spent.||Worker is paid on the basis of work done.|
|Certainty||Earrings of workers are certain.||Earnings of workers are uncertain.|
|Efficiency||It is not useful for efficient workers.||It is useful for efficient workers.|
Strict and control is necessary under this method.
|There is no need of strict supervision and control.|
|Ease||Exact labour cost cannot be determined, so difficulty in sending tenders and quotations may create.||Determination of exact labour cost is possible so preparation of tenders and quotation become quite easy.|
|Control||It is not helpful in cost control.||It is helpful in cost control.|
|Benefit||More production is benefitted to business only.||In resultant of more production both workers and business is benefitted.|
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
- What is Meaning of Weighted Average Price Method | Advantages and Disadvantages
- Meaning of Material Losses | Types and Treatment
- What is Difference Between Waste and Scrap
- What is Meaning of Obsolete Material |Causes, Treatment and Losses
- What are Methods of Labour Remuneration | Advantages, Disadvantages
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