Labour Costing

Abstract:

Labor cost is a significant element of cost especially in an organization using more manual operations. It is the cost of human endeavour in the product and requires coordinated efforts for its control. The management objective of keeping labour cost as low as possible is achieved by balancing productivity with wages. The object is often achieved by paying higher wages to limited satisfied workmen with high productivity. Low wage does not necessarily mean low labour cost.

You should be able to:

1. Explain Labour cost and what it involves;

2. Record Labour time and output;

3. Calculate time clocks and other methods of remuneration;

4. Distinguish between idle time, shift premium and overtime premium.

TABLE OF CONTENTS

TITLE ………………………………………………………………………………….PAGE

INTRODUCTION 1

TYPES OF LABOUR COST 1

Direct LabourCost 1

Indirect LabourCost 1

TECHNIQUES OF LABOUR COST CONTROL 1

PURPOSE OF LABOUR COST 2

ELEMENT OF LABOUR COST 2

ORGANIZATION FOR LABOUR CONTROL 2

Personnel Department 2

Engineering Department 2

Time-keeping Department 3

Payroll Department 3

Production Department 3

Cost Accounting Department 3

METHOD OF TIME RECORDING AND OUTPUT OF LABOUR COST 4

Objectives of Time-keeping 4

Methods of Time-keeping 4

COMBINED TIME AND PAY ROLL CARD 6

Requisites of a Good Time-keeping System 7

Objectives of Time-Booking 9

PAYROLL PREPARATION 9

Payroll Department Functions 10

WAGE ANALYSIS AND LABOUR 10

WAGE ANALYSIS 10

WAGES ANALYSIS BOOK 11

TREATMENT OF IDLE TIME 13

CAUSES OF IDLE TIME 14

TYPES OF IDLE COST 14

TREATMENT IN COST ACCOUNTING: 15

CONTROL 16

SHIFT PREMIUM ON LABOUR COSTING 16

Shift Differential 17

Eligibility for shift premium 17

Shift pay hours 18

TREATMENT OF OVERTIME PREMIUM 18

Overtime 18

Overtime Premium 18

ELEMENTS OF OVERTIME PAYMENT: 18

CONTROL OF OVERTIME: 19

Advantages of overtime premium 19

Disadvantages of overtime premium 19

OVERTIME CALCULATION COMPONENTS: HOW THEY WORK TOGETHER 20

1. Rates Costing Method 20

2. Extension Costing Method 20

Overtime Expenditure Types 21

Labour Costing Multipliers 21

Labour Costing Rules 22

Overtime Projects and Tasks 22

How to Calculate Employer’s Cost of Overtime 22

EFFECT OF UNIT COST 23

METHOD OF REMUNERATION 24

Illustration: 1 29

Solution: 29

Bonus or Incentives Schemes 30

Illustration: 2 31

Solution: 31

Illustration: 3 31

Solution: 31

Illustration: 4 33

Solution: 33

QUESTIONS AND ANSWERS 33

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