labour cost&wage determination

8/2/2019 Labour Cost&Wage Determination

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LABOUR COST&WAGE

DETERMINATION


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LABOUR COST

It represent the human contribution towardsproduction,

Labour always requires a harmonious andcongenial atmosphere ,a treatment based onhealthy human relationship for success of theorganization.


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COMPOSITIONOFLABORCOST

Monetary payments

-basic wages

-DA

-BONUS-E.P.F

-E.S.I

-GRATUITY

-PENSION

-Medical allowance ,L.T.A


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NON MONETARY PAYMENTS

housing facility

educational facility to children of employees

Canteen subsidized meals

Medical and health facility


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LABOURTURNOVER

It is an index denoting change(in and out) in the labor force foran organization in a specified period. if labour turnover ratio ishigh it is a bad situation for the organization.

CAUSES OF HIGH LABOUR TURNOVER

AVOIDABLE CAUSES

-low wages-dissatisfaction with job

-unsatisfactory relations with boss or subordinates

-unfair method of promotion

-lack of conveyance, accommodations

-Hours of work

-bad or no training facilities

UNAVOIDABLE CAUSES

-Retirement or death


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CONTINUE..

-accident or suffering from some disease

-discharge due to negligence, inefficiency,

-domestic responsibility

Cost of labour turnoverReplacement cost

Cost of spoilage

Delay in recruitment Inefficiency of new workers

Quality of work


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HOWTOCALCULATELABORTURNOVERRATIO

Separation method

Replacement method

Flux method

No of separations

average no of employees

No of employees replacedAverage no of employees

No of employees left+no of

employees joinedAverage no of employees


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METHODSOFWAGEPAYMENT

Time rate system

Piece rate system

Incentive schemes


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OVERHEADS ,CLASSIFICATION

,ALLOCATIONANDABSORPTION


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INTRODUCTION

Overheads are those indirect costs which can notbe directly allocated to any specific job ,process,product or a cost centre. For example rent of thebuilding,adminstration exp, supervision depreciation

repairs & maintenance, selling and distribution exp.


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CLASSIFICATIONOFOVERHEADS

Element

wiseFunctionwise

Behaviorwise


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ELEMENTWISECLASSIFICATION

indirect material

indirect labour

indirect overheads


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FUNCTIONWISECLASSIFICATION

Production overheads

Office and administration overheads

Selling overheads

Distribution overheads


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BEHAVIORWISE

Fixed overheads

Variable overheads

Semi variable overheads


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COSTALLOCATION ,ABSORPTION

Allocation of overheads cost meanscharging the entire amount of a cost to acost centre .the nature of expenses is such

that it can easily be identified and allocatedto cost centre.

For example salary of sales manager isallocated to the sales deptt. Salary of

foreman can be allocated to productiondeptt.


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APPORTIONMENTOFOVERHEADS

Where the expenses are common and related tovarious cost centers and it is be allotted to differentcost centers on certain basis.

Rent of the factory is to be shared by differentdeptts,it can be apportioned on some suitablebasis. Like floor area,


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BASISOFAPPORTIONMENT

Fire insurance of plant

Rent and rates

Electric light

Depreciation Material handling

charges

Crche expenses

Power

Value of plant

Floor space

No of electric points

Capital value Weight of material

No of female workers

No of machine hours


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COST SHEET - ADVANCED

OPENING STOCK OF RAW MATERIALS+PURCHASES

-CLOSING STOCK OF RAW MATERIALS

VALUE OF RAW MATERIALS CONSUMED+DIRECT WAGES+DIRECT EXPENSES

PRIME COST+FACTORY OVERHEADS+OPENING STOCK OF WIP-CLOSING STOCK OF WIP

FACTORY COST(CONT.)


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FACTORY COST

+ADMINISTRATIVE OVERHEADS

COST OF PRODUCTION+OPENING STOCK OF FINISHED GOODS-CLOSING STOCK OF FINISHED GOODS

COST OF GOODS SOLD+SELL. & DIST. OVERHEADS

COST OF SALES+PROFIT

SALES


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PREPARECOSTSHEET

Stock (1-4-09)

-raw material

-finished goods

Stock (30-4-09)-raw material

-finished goods

Purchase of RM

Carriage on purchase

W.I.P on 1/4/09

30/4/09

250000

173000

262000

157000

219000

11000

82000

91000


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CONTINUE

Sale of finished goods

Direct wages

Non productive wages

Direct expenses Factory overheads

Administrationoverheads

Selling &distributionoverheads

723000

172000

8000

1200083000

32000

42000


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SHOWCOSTSHEETFROMTHEGIVENDATA

Sales

Raw material

- 1-1-03

31-12-03

W.I.P opening

closing

Finished goods

opening

closing

Purchase of rawmaterial

800000

40000

32000

55000

72000

16000

24000

152000


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CONTINUE..

Direct labor

Manufacturingoverheads

Selling expenses General &admin exp

145000

108000

5000040000


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MACHINEHOURRATE

It may be defined as the cost of running a machinefor one hour .machine hour rate is calculated bydividing the production overheads with no ofmachine hours.

overheads are divided in two parts

-fixed charges or standing charges ( salary, rent,insurance)

-variable charges power, repairs and maintenance


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CALCULATEMACHINEHOURRATE

Purchase price of machine 400000

Installation charges 100000

Rent per quarter 3750

General lighting 1000 per month

Foreman salary 30000 per annum

Insurance premium 3000 per annum

Repairs 5000 p.a

Consumable stores 4000 p.a

Power consumed 2 units per hour at Rs 50 per 100 units. life ofmachine is 10 years. scrap value at the end of 10th year is Rs100000 .the machine is expected to run for 20000 hours in itslifetime. Machine occupies 1/4 area .the foreman devotes 1/6of his time on this machine.


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CALCULATEVALUEOFRAWMATERIALCONSUMED

Opening stock of raw material 20,000

Closing stock of raw material 30,000

Direct wages 2,10000

Factory overheads 60% of direct wages General overheads 10% of works cost

Cost of production 6,88,600


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PREPARECOSTSHEET

A component item involves material cost of Rs 6per unit and 10 minutes to produce .The operator ispaid Rs 72 per hour and machine hour rate is Rs150 the setting up time is 2hours and 20 minutes.

Show cost sheet if the batch of production is of

a) 10 units

b) 100 units

labour cost&wage determination

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