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deals with the importance of labour cost control,, the instruments used for time recording devices, time booking, idle time, labour turnover and methods of remuneration
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Labour
Cost & Management Accounting
-B.V.Raghunandan, SVS College, Bantwal
Labour
Direct LabourIndirect LabourLabour Cost ControlPersonnel DepartmentProduction or Engineering Department
Time Keeping Department
Time Keeping Department
A. Time Recording
B. Time Booking
Time Recording
Manual Methods: -Attendance Register -Disc SystemMechanical Methods - Time Recording
Clock - Dial Time RecorderElectronic Devices - Swipe Card - Bio-Metrics
Time Recording Clock-1
Time Recording Clock 2
Clock 3
Clock 4
Clock 5
Clock 6
Clock 7
Time Booking
Time Booking is tracing the time spent by the worker and identifying such time to jobs, processes or operation so as to calculate the wage cost of such processes, jobs or operations
Objectives of Time Booking
Ascertainment of Labour Cost
Control of Idle TimeDetermining Overhead Absorption Rate
Evaluating Performance of Workers
Determining Performance Bonus
Methods of Time Booking
Daily Time Sheets
Weekly Time Sheets
Job Tickets
Job Cards
Daily Time Sheets
Daily Time SheetName: Date:Clock Card No. Week No.Machine No. Cost Centre.
Work Order No.
Description
WorkDone
Time
HoursStarted
Finished
Workers’ Signature Foreman’s Signature Cost Office Reference
Weekly Time Sheets
Weekly Time SheetName: Date:Clock card No. Week Ending:Cost Centre/Department: Day Job No. Descriptio
nTime Total Hours For Cost Office
Start Finish Normal
OT Rate Amount
Worker’s Signature Foreman’s Signature Cost Office Ref:
Idle TimeIdle Time is the difference between the time for which payment is made and the actual time worked.
It is the time during which the worker did not engage himself in productive work
Causes of Idle Time
Avoidable Causes
Unavoidable Causes
Avoidable Causes
Failure of Power SupplyBreakdown of MachineryNon-Availability of MaterialStrikeLock-outNatural Calamities
Unavoidable Causes
Setting-up TimeMovement from Gate to
Production FloorMovement from One Job to
AnotherTime to Take InstructionTea-BreaksPersonal NeedsMinor AccidentsSeasonality of Industry
Over-Time
Work Carried on Beyond Normal Hours
Double the Rate of Payment Should be Avoided Normal Causes OT –charged to the
concerned Job or Batch Abnormal Causes OT-transferred to
Costing Profit and Loss account Only on Proper Authorisation
Causes of Over-Time
Completion of a Rush OrderMeeting a sudden spurt in demand
Completion of a Delayed WorkMaking up for Loss of Production due to Accidents, Flood or Other Natural Calamities
Labour Turnover
The rate at which the employees are leaving the organisation in a year
Also known as Attrition rate In IT industry, it was as high as 26-
30% in 2007- It has come down to 12-16% in 2009
It is unhealthy for the organisation It should be reduced as much as
possible through constant enquiry
Measurement of Labour Turnover
Separation Rate =
Replacement Rate
Labour Flux Rate
100ker
.XsberofWorAverageNum
sLeavingofEmployeeNo
100ker
ReXsberofWorAverageNum
placedNo
100ker
Re...X
sberofWorAverageNum
placementofNoLeavingNo
Causes of Labour Turnover
Avoidable Causes
Unavoidable Causes
Avoidable Causes of Labour TurnoverLow Wages Working
ConditionsLabour
RelationTrade Union
RivalryNo Job
SatisfactionLack of
Training
Bad Working Hours
Lack of Incentives
No Welfare Measures
Lack of Job Security
Unfair PromotionSupervisory Staff
Unavoidable Causes of Labour Turnover
Death, Retirement or Disablement Marriage or Pregnancy in case of
Women Better Career Opportunities Retrenchment Termination Change of Place of Work Change for Better Working
Environment Domestic Responsibilities
Preventive Cost of Labour Turnover
Higher Wages
Better Welfare Measures
Better Training
Better Working Conditions
Retirement Benefits
Replacement Cost of Labour Turnover
Recruitment CostCost of TrainingVacancy Time Gap and Loss of
OutputAdjustment Time for the New
WorkersLoss of QualityStrain on Tools & EquipmentHigher Scarp and Defective Work
Measures to Reduce Labour Turnover
Proper Recruitment
Good TrainingFair WagesGood Working
ConditionsLabour
AmenitiesLabour Welfare
Building up Loyalty Improving the Skills Improving Relations Communication of
Policies Grievances Cell Workers’
Participation in Management
Features of a Fair Wage System Guaranteed
Wage Uniformity Connected to CPI Recognition of
Efficiency Incentive for
Hard Work Equality Clarity
Progressive Scale
Consistency Flexibility Simplicity Fairness High Level of
Morale Viability of
operation
Systems of Wage Payment
Time RatePiece RateTaylor’s Differential Piece Rates
Halsey’s Incentive PlanRowan’s Incentive Plan
Time Rate
Wages are paid for the Time spent on the job
Output is irrelevantRate per Hour. Per Day, or per
MonthSuitable when Quality of work is
importantTrade Unions prefer this methodMonthly Payment goes with
other allowances
Advantages of Time Rate
Simplicity Easier Computation Encourages Skill Development Guaranteed Wages Minimum Loss to Material and
Equipmnets Equality of Wages Team Work Cordial Relation among the Workers Support of Trade Unions
Disadvantages of Time Rate System
Abilities are not DifferentiatedNo Incentive for Hard WorkRequires SupervisionDissatisfaction of Efficient WorkersLow MoraleNo Punishment for InefficiencyLabour Cost is not a variable cost
under this system
Calculation of Wages under Time Rate System
Total Wages = TT X TR where TT = Time Taken
TR = Time Rate
Piece Rate System
Rate per unit of outputOutput decides the wages payable
A standard time is taken and the standard output is determined
Time Wages for the standard output determines the piece rate
Advantages of Piece Rate System
Efficiency is recognisedMotivates the workersReduces labour cost per unitLabour cost is variableComputation of labour cost in
advance is easyLesser SupervisionLess Idle Time
Determination of Piece Rate
Piece Rate =
Total Wages = Output X Piece Rate
dardOutputS
TimeWages
tan
Disadvantages of Piece Rate System
Quality suffers Difficulty of Fixing the standard
output and Piece Rate More scrap and Defective Work Damage to Tools and Equipment No Guaranteed Wages Uncertainty in Income Trade Unions Oppose the System
Taylor’s Differential Piece Rate System
Two Piece Rates: Low Piece Rate and High
No Guaranteed Wages Standard Output is fixed on Time and
Motion Study Low Piece Rate at 83% of standard
piece rate for output below standard High Piece Rate at 175% of standard
piece rate for output above standard
Merits and Demerits of Taylor’s Method
Increases Efficiency and Motivates the Worker ensuring a high level of morale
Differentiates among workers leading to bad labour relation
Detailed records are to be maintained regarding the output of the workers
Demoralises human values
Halsey’s Incentive Plan
For time taken, wages are paid under time rate
A standard time is fixed in advance
For the time saved, 50% of time wages is paid as bonus
Remaining 50% goes to supervisor or management
Formula for Halsey’s Plan
Total Wages=Time Wages + Bonus
= TT X TR + [TS X TR x 50%] where
TT = Time Taken
TR = Time Rate
TS = Time Saved
Advantages
Easy understandability Guaranteed time rate irrespective of
the efficiency Incentive in the form of bonus for
time saved Workers can evaluate their own
performance on the basis of actual time taken against standard time
Management also shares the benefit leading to better investment in tools & equipment
Disadvantages of Halsey’s Plan
Quality may suffer Workers would drive themselves at
top speed leading to tension Lack of team work as each worker
will concentrate upon finishing his work at the earliest
Wastage of material and more scrap Tools would be subject to strain as
they may be carelessly handled
David J.Rowan’s Plan
Similar to Halsey’s Plan Guarantee of time wages Bonus for time saved Standard time is predetermined The bonus is in the proportion of time
saved to standard time Quantum of bonus depends upon the
time saved Management enjoys the remaining
value of time saved
Formula for Rowan’s Plan
Total Wages = Time Wages + Bonus
= TT X TR + [TS X TR X where TT = Time Taken TR = Time Rate TS = Time Saved ST = Standard Time
]TS
TT
THANK YOU
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