Rowan Premium Plan | Labour Cost – Free Cost Accounting Articles

Rowan Premium Plan

What is Rowan premium plan?

This premium bonus plan was introduced by Mr. James Rowan. It is similar to that of Halsey plan in respective of time saved, but bonus hours are ascertained as the proportion of time taken which the time saved bears to the time allowed and they are paid for at the rate.

Rowan premium plan is also similar to the Halsey plan, except in the calculation of the bonus.
The main features of his plan are:
(a) Workers receive remuneration based on actual time taken by them in completing the job.
(b) Workers receive a bonus for the time saved i.e., for the difference between the standard time and actual time.
(c) Bonus is calculated as a proportion of the time wages as time saved bears to the standard time. The Rowan premium plan also guarantees wages on a time basis.

Rowan Premium Plan Formula:

1) Bonus = (Time Saved/Time allowed) X Time taken X Time rate

2) Earnings = (Time taken X Time rate) + Bonus

Example

The standard time for producing 250 articles is 65 hours. The rate of wages is Rs. 2.50 per hour. The actual time taken for producing 250 articles is 55 hours. What are the earnings of the worker under the Rowan plan?

Solution

1. Bonus = (Time Saved/Time allowed) X Time taken X Time rate = (65-55/65) X 55 X Rs. 2.50 = Rs. 21.15
2. Earnings = (Time taken X Time rate) + Bonus = (55 X Rs. 2.50) + 21.15385 = Rs. 158.65
3. Effective Wage Rate per hour = Rs. 158.65/55 = Rs. 2.89

Evaluation:

The merits and demerits of the Rowan plan are similar to those of the Halsey Plan. An additional advantage under the Rowan plan is that the worker is not induced to rush through the work because if the time saved is more than 50% of the standard time, the bonus will come down. However, the calculation of bonuses is complicated. You may want to do the sum, which comprises all the above models. Try to understand the example as follows first and then try to do sums found at the end of the chapters on your own.

What are the advantages of Rowan premium plan?

1. It is claimed to be a fool-proof system in as much as a worker can never double his earnings even if there is bad rate setting.
2. It is admirably suitable for encouraging moderately efficient workers as it provides a better return for moderate efficiency than under the Halsey Plan.
3. The sharing principle appeals to the employer as being equitable.

What are the disadvantages of Rowan premium plan?

1. the system is bit complicated.
2. The incentives is weak at a high production level where the time saved is more than 50% of the time allowed.
3. The sharing principle is not generally welcomed by employees.

Stock Level	Labour Cost
Overheads	Material Cost
Gantt Task Bonus Plan	Labour Variances – Standard Costing
Rowan Premium Plan	Standard Costing – Material Variance