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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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