Vous êtes sur la page 1sur 15

Labour Cost:

Accounting and Control

07/09/09 Chandrakant@SOM,KIIT University 1


Why Control?
• Cost accounting for labour has three
primary objectives:
– Determining labour costs in the cost of
product or service
– Reporting labour costs for planning and
control
– Reporting labour costs for decision
making

07/09/09 Chandrakant@SOM,KIIT University 2


Basic Terms
• Direct Labour Costs: Includes the costs
incurred on wages which can be identified
with and allocated to cost objects.
Examples: all employees engaged in
converting the raw materials into some form
of finished output like workers, moulders,
operators, samplers and finishers, etc.
• Indirect Labour Costs: Which can not be
allocated but which can be assigned or
apportioned to cost centers or cost objects.
Examples: employees not engaged in
converting the raw materials into finished
goods like foremen, inspectors, watchmen,
supervisors, factory clerks, store keepers
07/09/09 Chandrakant@SOM,KIIT University 3
Organisation for Labour
Control
• The following departments/functions
contribute to effective utilization of
labour and adequate control over
labour costs:
– Personnel Dept.
– Engineering Dept.
– Time-keeping Dept.
– Payroll Dept.
– Cost Accounting Dept.
07/09/09 Chandrakant@SOM,KIIT University 4
Wage Systems
• A well defined wage system should be
designed to ensure exercising control
and managing the labour cost. The
following objectives should be
considered before designing wage
system:
– Acceptance by employees to avert
slowdowns and work stoppages
– Provision for flexibility
– Provision for economy in administration
– Stabilization of labour turnover
– Minimizing absenteeism
07/09/09 Chandrakant@SOM,KIIT University 5
Kinds of Wage Systems
• Straight Time: The worker is paid at an hourly,
daily or weekly rate and his remuneration
depend upon the time for which he is employed
and not upon his production. If someone works
for overtime, he is paid at a higher rate. Found
in industries where:
– The speed of production can’t be influenced by the
energy or dexterity of the worker
– Quality of work is of paramount importance
– Difficult to measure the work done by the employee
• Piece Work: A fixed rate is paid for each unit
produced, job performed or number of
operations completed, and the worker’s wages
thus depend upon his output and not upon the
07/09/09 Chandrakant@SOM,KIIT University 6
Incentive Wage Plans
• Objective: To induce a worker to produce
more so that he can earn a higher wage
and, at the same time, the unit costs can be
reduced.
• Incentive wage plans involve wage rates
based upon various combinations of output
and time and are known as “differential
piece-rates” and “bonus plans” as well.
Generally the following types are used:
– Taylor Differential Piece-rate System
– Merrick Differential Piece-rate System
– Gantt Task Bonus Plan
07/09/09 Chandrakant@SOM,KIIT University 7
Taylor Differential Piece-rate
• In this system, the efficient workers are
penalized by paying him low piece rate and
rewarding the efficient worker by paying
him a high piece rate for his higher
production. Formula: (i) 80% of normal piece
rate when below standard (low piece rate)
and (ii) 120% of normal piece rate when at
or above standard (high piece rate)
• Concept Problem 4: Calculate the earnings
of A and B. Standard production 8 units per
hour, normal time rate Re 0.40 per hour. In
a 9 hours a day, A produced 54 units and B
produced 75 units. Apply Taylor’s
Differential Piece Rate System.
07/09/09 Chandrakant@SOM,KIIT University 8
Merrick Differential Piece-rate
• In this method, three piece rates are
used.
Efficiency Piece
Rate
Up to 83 1/3 % Normal
Piece Rate
Between 83 1/3% - 100% 110% of
Normal
Above 100% 120% of
Normal
• Concept Problem 5: Calculate the
07/09/09 Chandrakant@SOM,KIIT University 9
Gantt Task Bonus Plan

• This system is a combination of both


time and piece wage system.
Standard time is set for a job or task
and the worker’s efficiency is
ascertained by comparing the actual
performance with the standard set.
– For Output below standard: Time Rate
– For Output as standard: 120% of time
rate
– For Output above standard: 120% of
07/09/09 Chandrakant@SOM,KIIT University 10
Premium Bonus Plans

• Bonus plans have been devised to


produce a trade-off i.e. any savings in
cost are shared between employer and
the employee.
• The cost per unit decreases when
production exceeds standard.
• Bonus under different plans:
– Halsey Premium Bonus Plan
50% * Time saved* Hourly rate
– Rowan Premium Bonus Plan
Time saved/Standard time * Time taken*
07/09/09 Chandrakant@SOM,KIIT University 11
Work Study
• Successful operation of incentive wage schemes
depend on making a proper work study. It is a study of
job, methods and equipment to ensure that the best
way to do the job has been followed by a worker.
Consists of two methods:
• Method Study: Study and analysis of methods to
improve the methods of production and to achieve
most effective use of materials, manpower and plant.
– Improved method has effectiveness, efficiency and
operational simplicity
– Unnecessary operations and activities are avoided
– Proper follow up is necessary
• Work Measurement: Aims at determining the effective
time required to perform the work. Different stages
are;
– Selection of the work
– Measuring the actual time taken in the work done
07/09/09 Chandrakant@SOM,KIIT University 12
Labour Turnover

• It is the rate at which the employees


leave employment at a factory and is
normally measured as a %.
• LT (%) = (All employees leaving/Avg.
no. employed) * 100
• It is caused by many factors such as:
– Avoidable causes
– Unavoidable causes
– Personal causes

07/09/09 Chandrakant@SOM,KIIT University 13


Cost of Labour Turnover

• Cost of labour turnover consists of the


two elements:
– Preventive cost
• Personnel administration
• Medical and health care
• Welfare measures
• Retirement benefits
– Replacement cost
• Personnel department expenses
• Cost of training new employees
• Inefficiency of new workers
• Cost of breakage of tools and equipments

07/09/09 Chandrakant@SOM,KIIT University 14


Measures to reduce Labour
Turnover
• One should look at the following
points to reduce the labour turnover:
– Pay problems
– Employees leaving to further their
career
– Employees leaving due to conflict
– The induction crisis
– Shortage of labour
– Changes in working retirements
07/09/09 Chandrakant@SOM,KIIT University 15