Labour Cost
• Wages paid to workers during an
accounting period on daily, weekly,
monthly, or job basis, plus payroll and
...
The Manager’s Thought
Prime cost of
concern for
the HRD
Important part
of production
process
Decides price
of product
LABO...
Labour Costs
Direct
That portion of wages or
salaries which can be
identified & charged to a
single costing unit
Indirect
...
Other Benefits
• Employees contribution to PF,
production & profit bonus,
holiday & vacation bonus, old
age pension
Financ...
System of wages
• Should satisfy employees & employer
System of
wages
Time Wage or
Day Rate
Piece Rate or
Piece Work
5
Time Wage or Day Rate system
• Wages to worker are paid on time basis irrespective of
quantum of production
• Wage measure...
Piece Rate or Piece Work
• Remuneration of work is paid on the basis of
production and not time taken by to perform the wo...
Why Control labour costs?
• Inefficiency of labor
• Wasting material due to improper supervision
• Idle time – normal & ab...
Controlling accomplished by:
Personnel department
Rate or time & motion study
Production planning
Budgeting
Engineering de...
OTHER COSTS
• Idle time
• Overtime
• Bonus & premiums
• Incentive wage plans
• Group bonus schemes
• Co –partnership schem...
Treatment of Idle Time Cost
• Treatment of normal idle time cost
(i) Treated as direct wages
(ii) Treat as an item of fact...
Overtime & its treatment
• Time spend over & above the normal working
hours on the job
• In India, if worker works more th...
Bonus and premium
schemes
• To increase the production
and productivity
• To raise the morale
• To retain the services of ...
Types of incentive wage plans
1. Halsey premium plan
2. Halsey- weir premium system
3. Rowan plan
4. Bedaux point premium ...
TYPES OF INCENTIVE WAGE
PLANS
Halsey Premium Plan
• The worker is paid a % of the time saved over the standard rate per
pi...
Cont…
Rowan System
The bonus hours are calculated as the proportion of the
time taken which the time saved bears to the
st...
Question ???
Time allowed (standard time): 60 hrs.
Rate of wages: Rs10 per hour
Factory A
Halsey PlanRowan Plan
Factory B
...
The formula of calculating wages by Halsey premium
method and Rowan’s method are as follows:
Time taken* rate + %(standard...
Bonus : 50% time saved * rate per hr
=50% (60-48) * 10
=60 Rs
‘A’
(Rowan’s method)
Rs.
‘B’
(Halsey’s method)
Rs.
Wages:
Bo...
Merrick Differential Piece Rate
System
• Has 3 categories for
payment
• Daily wages are not
guaranteed.
20% above
Normal r...
Methods of measuring workforce performance
– Labour turnover
– Labour productivity
– Absenteeism
21
Labour turnover
• Labour turnover (staff turnover) can be
defined as the rate of change in a firm’s
labour force.
• look a...
Turnover and costing
Labour turnover
( High / Low )
Preventive costs
Replacement
costs
23
Calculation Methods
1.Separation method:
• no.of separations in a period/avg total no.of
workers in a period * 100
2.Flux ...
Labour productivity
Output per worker
=Total value of Output
Total Number of workers
• Look at labour productivity
over a ...
THANK YOU
26
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New Labour Cost

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Labour Cost
System of wages
Piece Rate or Piece Work
Why Control labour costs?
Idle Time Cost
Types of incentive wage plans
Halsey premium method and Rowan’s method
Merrick Differential Piece Rate System
Measuring workforce performance
Labour turnover
Turnover and costing
Calculation Methods
Labour productivity

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New Labour Cost

  1. 1. Labour Cost • Wages paid to workers during an accounting period on daily, weekly, monthly, or job basis, plus payroll and related taxes and benefits (if any). 1
  2. 2. The Manager’s Thought Prime cost of concern for the HRD Important part of production process Decides price of product LABOUR COST IS: 2
  3. 3. Labour Costs Direct That portion of wages or salaries which can be identified & charged to a single costing unit Indirect Cannot be correlated with production of specific goods, applicable to mfg activities generally (paid to foreman,stockkeeper,clerical staff) C L A S S I F I C A T I O N 3
  4. 4. Other Benefits • Employees contribution to PF, production & profit bonus, holiday & vacation bonus, old age pension Financial • Subsidised food & housing, transport to the workplace , employee’s children education , recreational facilities etc. Non- financial 4
  5. 5. System of wages • Should satisfy employees & employer System of wages Time Wage or Day Rate Piece Rate or Piece Work 5
  6. 6. Time Wage or Day Rate system • Wages to worker are paid on time basis irrespective of quantum of production • Wage measured on basis of unit of time, i.e., hourly, daily, weekly or monthly • Formula: SUITABILITY :Volume of production is not within the control of labor. E.g. Oil Refinery • The nature of work is such that there is no basis for incentive plan. E.g. Night watchman Hrs worked X Rate per Hr 6
  7. 7. Piece Rate or Piece Work • Remuneration of work is paid on the basis of production and not time taken by to perform the work • Simple and most commonly used incentive schemes • Formula: SUITABILITY : • If the productivity is closely related to skill & efforts • The unit cost can be easily determined • If it is possible to fix a fair and acceptable piece rate Units Produced X Rate per Unit 7
  8. 8. Why Control labour costs? • Inefficiency of labor • Wasting material due to improper supervision • Idle time – normal & abnormal causes. • Unusual overtime work • Inclusion of dummy names in payrolls, etc
  9. 9. Controlling accomplished by: Personnel department Rate or time & motion study Production planning Budgeting Engineering department Time - keeping Cost accounting department Payroll department
  10. 10. OTHER COSTS • Idle time • Overtime • Bonus & premiums • Incentive wage plans • Group bonus schemes • Co –partnership schemes
  11. 11. Treatment of Idle Time Cost • Treatment of normal idle time cost (i) Treated as direct wages (ii) Treat as an item of factory expenses and recover as indirect charges • Treatment of abnormal idle time cost (i) Does not form part of cost of production (ii) Directly transferred to Costing Profit & Loss Account without disturbing the normal costs
  12. 12. Overtime & its treatment • Time spend over & above the normal working hours on the job • In India, if worker works more than 9hrs a day or 48 hrs a week. I. Direct cost- customer pays due to urgency II. P/L A/c- to makeup any shortfall in production due to some fault of management or due to abnormal causes like floods III.General overhead- when handling seasonal pressures
  13. 13. Bonus and premium schemes • To increase the production and productivity • To raise the morale • To retain the services of good workers • To establish better labor- management relations Group bonus schemes • To develop team spirit • Where output is more dependent upon the efforts on the group rather than the individual worker. • METHODS • Equally by all workers in the group. • Pro rata on the time rate basis. • Predetermined percentage basis. • Specified proportion basis depending upon the different skills of the workers. Co-partnership / shares • Provide an opportunity to workers to share the prosperity of the company by not only being the wage earner but also the partner of the undertaking. • The profits to be distributed are determined through the negotiation between the employer and the employee. • Normally it is paid in cash, but it may be in the form of shares of the undertaking.
  14. 14. Types of incentive wage plans 1. Halsey premium plan 2. Halsey- weir premium system 3. Rowan plan 4. Bedaux point premium system 5. Taylor’s differential piece rate system 6. Merrick differential piece rate system 7. Gantt task & bonus plan 8. Emerson efficiency system
  15. 15. TYPES OF INCENTIVE WAGE PLANS Halsey Premium Plan • The worker is paid a % of the time saved over the standard rate per piece. • Standard time is fixed for each job/operation • If the labour completes at standard time or more he is given the standard price. • If time saved- wages given for actual hours saved as a bonus. Time taken* rate + %(standard time-time taken)* rate
  16. 16. Cont… Rowan System The bonus hours are calculated as the proportion of the time taken which the time saved bears to the standard time allowed Time taken* rate + standard time – time taken* time taken* rate Standard time
  17. 17. Question ??? Time allowed (standard time): 60 hrs. Rate of wages: Rs10 per hour Factory A Halsey PlanRowan Plan Factory B Time taken =48hrsTime taken =36hrs Required: Total earnings according to both the systems
  18. 18. The formula of calculating wages by Halsey premium method and Rowan’s method are as follows: Time taken* rate + %(standard time-time taken)* rate Time taken* rate + standard time – time taken* time taken* rate Standard time Wage at location A: 36 *10= 360 Rs Wage at location B: 48 * 10=480 Rs Bonus : 60-36 * 36 *10= 144 Rs 60
  19. 19. Bonus : 50% time saved * rate per hr =50% (60-48) * 10 =60 Rs ‘A’ (Rowan’s method) Rs. ‘B’ (Halsey’s method) Rs. Wages: Bonus: 360 144 480 60 Total: 504 540
  20. 20. Merrick Differential Piece Rate System • Has 3 categories for payment • Daily wages are not guaranteed. 20% above Normal rate Above 100% 10% above Normal rate Up to 100% Normal rateUp to 83% Price rate applicable Efficiency
  21. 21. Methods of measuring workforce performance – Labour turnover – Labour productivity – Absenteeism 21
  22. 22. Labour turnover • Labour turnover (staff turnover) can be defined as the rate of change in a firm’s labour force. • look at labour turnover over a period of 1 year. 22
  23. 23. Turnover and costing Labour turnover ( High / Low ) Preventive costs Replacement costs 23
  24. 24. Calculation Methods 1.Separation method: • no.of separations in a period/avg total no.of workers in a period * 100 2.Flux or separation cum replacement method: • No. of separation+ no.of replacement/ avg total no.of workers in a period *100 3.Replacement method: • No.of workers replaced during a period/avg total no.of workers* 100 24
  25. 25. Labour productivity Output per worker =Total value of Output Total Number of workers • Look at labour productivity over a period of time e.g. 1 year Cost per unit = Total Labour Cost Number of units produced 25
  26. 26. THANK YOU 26

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