Management accounting - Essay Example

The company has had a history of high turnover and this is based on the fact the employees were not feeling motivated under the current payment scheme. For instance, the largest production center, which has 75 employees, was paying the employees just 9040 while under the new scheme the employees are going to be paid more salary at 10250. According to Kline (2010), the increase in salary will motivate the employees to work extra harder. Several motivation theories also point out that better remuneration is key to motivation of employees.

When employees are paid salary, which is commensurate with their input at the organization, they will become more productive which in turn boosts the competitive edge of the company irrespective of the industry in which it operates. The cost of high turnover is an indication that the employees are not motivated. Moreover, it is a costly affair to the company because the cost of replacing workers, which have exited the company, is a huge expense, which eats into the profitability of the company.

On the other hand, the new hourly pay rate is also cost effective because under the new hourly rate, the electronics department will pay less to employees. Prior to the new scheme, the total cost incurred on employee salary for the three employees, Ewelina, Danesh, and Sarah. For instance, under the new hourly rate the company will pay $810 less to the employees because previously the paid £4522.2 but under the new hourly rate the pay is £ 3712.5. Siddiqui (2006) asserts that the sole objective of operating a business is to make profit, which is achieved through increased revenues and reduced cost.

The fact that the company will register less expenses in salaries means that it will improve its profitability hence the new hourly pay scheme is a welcomed