A method has been engineered and operation time of an operator was recorded (tim

Question

A method has been engineered and operation time of an operator was recorded (time study). The method has produced an average overall time of 3.5 minutes by actual watch timing. The overall pace rating applied to the job was 115%. This company, which uses an incentive system, adds extra time into the production rates to cover personal time, fatigue, and unavoidable delays. Total allowance is 20%. Determine the rated time or normal minutes, the total allowed time or standard minutes, the standard hour rate for the job per 100 units, and the pieces per hour. Normal time = 3.5 x pace rating of minutes Normal Time minutes The labor rate per hour is $20. What is the standard labor cost per unit?

Explanation / Answer

Normal Time = (average element time) x (Performance rating / 100)

                        = 3.5 x 115% = 4.025 minutes

Standard Time = normal time + allowance time or normal time / (1 - allowance fraction)

                          = 4.025 minutes / (1- 20/100) = 5.03 minutes

Direct Labour Cost Per Unit =Direct Labour Hourly Rate * Number of Labour Hours per Unit

                                                    = $20 x 1hr /uint

                                                  = $ 20 hr / unit

Total units are 100

So total direct labour cost per unit = $20 x 100 = $2000

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