final labor costing

7/28/2019 Final Labor Costing

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Prepared by

Chintan Pawaskar C08

Romil Malde C38

Deepak Kharatmol C10Nivedita Sarode C23

Shweta Jogdand C45

Rutuja Nene C51


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Cost of labour

Sum of all wages paid to employees as well as thecost of employee benefits and payroll taxes paid by an

employer

Objectives

Determining labour cost in the cost of goods or

service Reporting labour cost for planning & control

Reporting labour cost for decision making


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Direct labour cost

Consist of wages paid to the workers which are

actually involved in manufacturing process

Ex. Line workers, machine operators, etc

Indirect labour cost

Consist of salaries paid to labours which are not

directly engaged in manufacturing process Ex. Supervisors, time keeper, office staff, etc


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Personnel department

Engineering department

Time keeping department

Payroll department

Cost accounting department


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Main function is to provide efficient labour force

Prepares employees record card on engaging a

new worker

Personnel manager is responsible for the

execution of labour policies


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Maintains control over production methods &

working conditions for each job & department

Prepares plan & specification for each job

scheduled

Survey & inspection of production activities

Safety & efficient working conditions


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Prepares record of time spent by each employee

Determines total working hours for each employee

so that his earning can be calculated

Also records attendance details of employees


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Clock card

Disc methods

Attendance record


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It means recording time spent by employee in

each job, process or operation

Objectives

To determine amount of labour cost

To determine value & quantity of work done

To determine performance bonus


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Job tickets

Job cards

Weekly time sheets

Daily time sheets


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To prepare payroll from clock cards, job or time sheets

Functions

To compute employee wages

To prepare departmental payroll summaries To distribute salary & wage payments

To compute payroll deductions, taxes

To verify & summaries time of each worker as shown in daily

time cards


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Keeps records related with cost of material, labour and

expenses

It analyzes all costs of manufacturing, marketing and

administration

It generates control reports and data for decision making to the

executives


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It is important aspect labour cost control

Objectives of wage system

Acceptance by employees to avert slowdowns

Stabilization of labour turnover

Provision for incentive plans

Provision for flexibility


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Straight time

Under this basis the worker is paid at hourly,

weekly or daily basis & his remuneration

depends upon time for which he is employed

From employer point of view this method is easy

to compute & provide economy in time keeping

& payroll recording Most popular method for workers such as clerks,

accountants, factory helpers


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Piece work

Under this method fixed rate is paid for each unit produced or job

performed

Advantages Efficiency is recognized

Motivates the worker

Lesser supervision

Less idle time Computation of labor cost in advance is easy


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Disadvantages

Quality suffers

Difficult of fixing standard output & piece rate

Uncertainty in income

More scrap & defective work


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Basic purpose is to induce worker to produce

more so he can earn higher wages & at the same

time unit cost can be reduced

Object ives :-

Higher production without dispute between labor &

management

Stability in labor turnover Reduce absenteeism

It improves adminstrative efficiency


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Taylor Differential piece-rate system

Under this system there are two wage rate i.e., A

Low wage rate for output below standard and a Higher

wage rate for output above standard performance

The system aims to discourage below average

workers by

Providing no guaranteed hourly wage

Setting low piece rate for low level production and

high rate resulting in high earning


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Examp le : -

Worker Earnings Rs. 240 / day

Working Hours 8 / day

Average Production 12 units / 1hr. / one worker

Unit Cost 2.5 / unit

Rs. 2 / unit Production Averaged to 14 units or less / hr.

Rs. 3 / unit Production Averaged to 15 units or more / hr.


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Gantt task & Bonus plan

This system combines a GUARANTEED time rate

with a bonus and piece rate plan using the differential piece

rate principle

Plan provides incentives and opportunities to those

who reach high level production

Provides security and encouragement to the less

skilled workers

workers are also satisfied in that they receive the

total reward for their efforts


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Examp le : -

Output Payment

Output Below Standards

(high task)

Time rate (Guaranteed)

Output At Standards Bonus on the time rate

Output Above Standards High piece rate on workers

whole output


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Basic wages Time based systems

Total Wages = Hours x Basic rate of + Overtime hourworked + Overtime premium Worked pay per

hourper hou r Piece works systems

Basic earnings = Unit Produced x Rate of Payper unit

Idle time Idle time RatioIdle time Ratio= Idle time X 100

Total attendance Time


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Labour turnover Separation Method

Labour Turnover = No. of separation during the period x 100

Average No. of Workers during theperiod

Replacement Method

Labour Turnover= No. of Workers Replaced during the period

Average No. of Workers during theperiod

Flux methodLabour Turnover= No. of Separation + No. ofReplacementX100

Average No. of Workers during the period


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Illustration:

From the following information, calculate labour turnover ratio and turnover fluxrate

No. of workers as on 1" Jan. 2003 = 7,600

No. of workers as on 31" Dec. 2003 = 8,400

During the year, 80 workers left while 320 workers were discharged, 1,500workers were recruited during the year of these, 300 workers were recruitedbecause of exits and the rest were recruited in accordance with expansion plans.

Solution:

Labour Turnover Ratio

(1) Replacement Method:

No. of Replacement = 300 workers

Average No. of Workers = 7600 + 8400 = 80002


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Labour Turnover = No. of Replacement x 100

Average No. of Workers

300 x 100

8000

= 3.75 %

FLUX METHOD = No of Separation + No of Replacement X 100

Average No. of workers

1500 + 400 X 100 = 23.75 %

8000


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final labor costing

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