Case Study on Schemes : Case 11

Answer the questions at the conclusion after carefully reading the case that is presented.

The Goldmine Plan

A piece rate incentive programme of Rs. 10 per produced product unit was offered by Sterling & Co. to manufacturing workers. The firm reported an average monthly output of 18,000 good units for the year ending March 31, 1987. 2,000 nits per month were excluded since they had to be trashed after all production processes because of the company’s strict quality control criteria. Scrap has a marketable value of 20 rupees per unit. The product’s unit price structure is as follows:

Rs. 80 for Variable Manufacturing Cost (without Piece Rate Incentive to Employees).

$25 was spent on marketing and distribution.

Price of sale: Rs. 160

monthly fixed costs of Rs. 3,60,000

Mr. Patel, the company’s managing director, was contacted by Mr. Lal, a labour union official, for a stronger incentive programme that would significantly benefit the employees.

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The incentive payment would be raised to Rs. 15 each good unit created, subject to a minimum new incentive plan accomplishment of 20,000 good units per month, it was decided after extensive consideration and discussion between the Union and Management.

Additionally, it was decided that the trial period would first last for three months and would then be extended for an additional three years, subject to Mr. Patel’s evaluation. Mr. Patel shall be free to impose any additional requirements at the time of such a review, subject to the union’s proper acceptance, without raising the 20,000 unit monthly objective.

All of the employees were really pleased with the new plan, which boosted their incentive amount by 50%, and they all had high hopes of hitting the monthly goal. They gave the new plan the exuberant moniker “Goldmine,” which quickly gained popularity throughout the organisation.

The trial’s three-month timeframe showed an increase in average monthly output of excellent units to 21,000 units. 3,000 units needed to be scrapped each month at the same time. Mr. Patel was quite happy when he saw the increase in quality unit manufacturing.

After some reflection, he realised how much the sudden increase in units being rejected worried him. No price rise was conceivable due to fierce competition, although fixed costs each month rose by 10% as a result of higher production levels.

QUESTIONS

(A) Has the adoption of the “Goldmine” Scheme been advantageous to the company?

(b) Do you see any errors in the “Goldmine” Scheme’s formulation?

The Goldmine Plan

QUESTIONS

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