ZIMSEC O Level Business Studies Notes: Piece Rate

  • This when a payment is made to a worker for each unit that the worker has produced
  • Workers wages depend on the quantity they have produced
  • It does not consider the time spent by workers in producing each unit
  • Piece rate system is the method of remunerating the workers according to the number of unit produced or job completed.
  • It  pays wages at a fixed piece rate for each unit of output produced
  • The wages payable to the employee are calculated using the formula:
  • \text{Wages} = \text{Output x Piece Rate}
  • The formula can also be expressed as:
  • \text{Wages} = \text{Units produced x Piece Rate}

Advantages

  • It encourages workers to increase output
  • Encourages greater effort and faster working
  • Reduces idle time
  • Gives incentives to workers to find faster means of accomplishing given tasks/jobs
  • It makes costing easier as the labour production cost per unit is known in advance
  • Makes financial planning easier
  • It requires less supervision thus reducing the cost of supervision
  • Reduces fixed cost per unit due to higher output

Disadvantages

  • Emphasises quantity over quality
  • It is difficult/impossible to calculate when workers do not have a measurable output e.g. teachers and security guards
  • It is not suitable where workers have no control over the pace of production e.g. on the assembly line a fast worker may be held back by his/her slower colleagues
  • Increases quality inspection costs
  • Might result in products of different standards being produced by various workers
  • Can adversely/negatively affect worker’s health

To access more topics go to the O Level Business Notes page.

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