A Level Business Studies: The Piece Rate System
- The piece rate system is a method of remunerating workers according to the number of units produced or jobs completed.
- It pays wages at a fixed piece rate for each unit of output produced, and the wages payable to the employee are calculated using the formula: Wages = Output x Piece Rate or Wages = Units produced x Piece Rate.
- 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.
- The system remunerates workers according to the number of units produced or jobs completed.
- It pays wages at a fixed piece rate for each unit of output produced.
- 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.
- Makes costing easier as the labour production cost per unit is known in advance.
- Makes financial planning easier.
- Requires less supervision thus reducing the cost of supervision.
- Reduces fixed cost per unit due to higher output.
- It encourages workers to increase output, leading to greater productivity.
- It encourages greater effort and faster working, reducing idle time.
- It gives incentives to workers to find faster means of accomplishing given tasks/jobs.
- It makes costing and financial planning easier, as the labour production cost per unit is known in advance.
- It requires less supervision, reducing the cost of supervision.
- It reduces the fixed cost per unit due to higher output.
- The system emphasizes quantity over quality, leading to lower-quality output.
- It is difficult or impossible to calculate when workers do not have a measurable output, such as teachers and security guards.
- It is not suitable where workers have no control over the pace of production, such as on an assembly line where a fast worker may be held back by slower colleagues.
- It increases quality inspection costs.
- It might result in products of different standards being produced by various workers.
- It can adversely affect workers’ health, especially if they are working too fast or too long.
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