Jones Ironworks, Inc.

575 Words Aug 16th, 2011 3 Pages
I generally agree with the arguments presented by Freddie Jones and my comments on his claim are as below:
1). I agree with his claim that payment system should be changed from hour rate into piece rate as to stimulate the employees’ incentive to produce efficiently. When paid by hour rate, the employees have no financial incentive to work efficiently because that paying system does NOT get their earning related to their productivity so. On the contrary, the piece rate will encourage higher efficiency and production to some extent, because the more they produce the more they will earn. Under that payment system, the employees are financially motivated to work hard and efficiently to get more earnings.
2) I also agree with his claim to
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But, the fact is that the actual labor hours are quite possibly higher than the budgeted standard hours because of many unforeseeable conditions. So it is better to use the actual labor hours of the most recent period to do the calculation. 2). He only concerns on the short-term profit of his company and is too conservative to take some good change for the long run operation. First, it is not rational for him to turn down the proposal of using piece rate paying system just base on his unsuccessful try in a profit sharing plan 10 years ago, because the market conditions have change a lot and the result of implementing the similar plan could be different today. Second, he is too stressed on the effect of the increase labor wage. Even though the company is experiencing a profit squeeze, it isn’t possible for it to go out of business immediately due to paying a little higher labor costs. Since the labor costs do not cover a big percentage of sales, the increase in labor cost will not have significant effect on its marginal profit, balance sheet, cash flow or working capital. In addition, he neglects the effect that the wage increase will stimulate the increase in employees’ productivity which is very important and advantageous to long-run

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