The document discusses various aspects of direct and indirect labor costs. It defines direct labor as costs that can be traced directly to a specific product or service, like cooks in a restaurant. Indirect labor supports the organization generally, like cleaners. It also discusses methods for tracking labor time, like punch cards and time sheets, and different payment schemes, such as piece rates where workers are paid per item produced. The goal is to match employees to the right jobs, compensate them fairly, and motivate good performance.

1. Mohamad Ridhuan Bin Mat Dangi 2011

2.  All people recruited must be matched with the
right job, trained, paid at a reasonable wage,
motivated, and appraised.
 Labor is a major cost in all organizations.
 The workers in the company must be compensate
in order to appreciate them as a reward to the
contribution of company profit and performance.

3.  Definition – direct labour is the cost of remuneration for
employees’ efforts and skills applied directly to a
product or service and can be identified separately in
products costs.
 Directly involved in the production of the goods and
services.
 For example: in the restaurant the direct labour cost
incurred to the cooks, kitchen helpers, food tester,
nutritionist , etc.
 Other example: education, factory, etc.

4.  Labour is only classified as direct when:
1. There is direct involvement/ relationship to the
product/output – physical
connection/association
2. The labour cost can be measured- measurability
3. The labour cost is sufficiently material in amount-
materiality

5.  Definition- refers to the wages which cannot be
identified with a particular product or service and need
to apportion the costs between two or more products.
 Indirectly involve in the production and more related to
the supporters to the organizations performance.
 For examples: service departments ( cleaners,
maintenance workers, storekeepers, security guard,
machine cleaners), production department
( foreman, inspectors, supervisors, forklift and crane
drivers, etc)

6.  A record of time is required for all hourly employees and also for
salaried workers if they are paid overtime and known as
timekeeping.
 Objectives of timekeeping is to provide the necessary
information that enable the payroll department in order:
1. To calculate and prepare the payroll
2. To be used by accounting department for payment purposes
whether direct or indirect labour.
3. To analyze the times spent for costing purposes
4. For planning and control purposes.

7.  Is also known as timekeeping
 Help to provide a record of time spent in a factory and
also is form of attendance record.
 The method for time recording used is punch card/
clock cards. This card will be an evidence to the
workers who do overtime or late departures.
 To control this method, the company can assign the
security guard to ensure the workers do not help to
stamp each other’s card.

8.  Is a form of timekeeping to record the time spent on a
job or operation in the factory.
 This information should be able to be reconciled with
the time recorded in the punch card/clock card.
 Types of time booking is:
1. Daily time sheet and weekly time sheet
2. Labour cost card/job card
3. Operation card

9.  The employee can either use daily time sheets or
weekly time sheets
 The objective is to reconcile the time recorded in
the punch card with time booking to jobs or
operations
 Weekly time sheets can reduce the volumnous
records of daily time sheet.

10.  Is used to find out the labour time spent on each
order/job. It is prepared separately for each job/order.
 The card will move from worker to worker as the job
progress and it will have a record of time spent by
each order or labour hours spent on an order/job.
 Each card will contain the total number of hours
worked on a particular order/job.
 It is used for costing labour of a job and is not used
for wages calculation.

11.  The card is provided for each stage/operation of
manufacture.
 Single job will have a number of operations cards.

12.  Definition- remuneration is the reward for labour
and service.
 There are two types of remuneration:
1. Time based scheme
2. Output scheme/individual scheme

13.  Is a method of payment based on time which is
based on per hour, per day, per week or per
month basis.
 There are two time based scheme which is Basic
Scheme and High Day Rate Scheme.

14.  Basic Scheme – earnings are calculated based on the
number of hours spent at his/her place of work.
Gross Wages = Hours Worked x Rate Per
Hour
 If he work more than his basic working hours, it will be
consider as overtime
Overtime Hours = Hours Worked – Basic Working Hour s
 Overtime hours are usually paid at a higher rate such as 1
¼ times, 1 ½ times or 2 times higher and sometimes it may
be increase into 3 times on public holidays and weekends.
 This scheme is suitable for a job with the high degree of
skill and quality are needed.

15.  Advantages:
1. It is widely used, simple to implement and not much clerical
work
2. All employees is easy to understand
3. The quality of work will be increase
 Disadvantages:
1. A worker will try to slow down production to increase his
wages in order to increase wages by completing their work
during overtime
2. Efficient and inefficient workers are paid the same
3. Dissatisfaction may be arise among the efficient workers

16.  Is designed to provide a strong incentive to good
workers by paying rates well above the normal
rate.
 The high wage rate is offered in return of high
standard of performance and output.
 The wages costs may increase but it can help to
reduce the labour cost and overheads cost

17.  Advantages:
1. Simple to implement and administer
2. Able to attract higher grade workers
3. Dissatisfaction among good workers is likely to
reduce
 Disadvantages
1. High output and high quality is difficult to achieve
and maintain

18.  Is an incentive scheme which relates payment to
output such as the more workers can produced the
more they will be paid.
 The characteristics of this scheme is:
1. The standards of performance should be achievable
2. Remuneration should be made immediately after the
task is completed
3. The standard set should not be changed too often

19.  Advantages:
1. Increase the production helps to reduce overhead cost
per unit
2. Helps to improve morale because effort is rewarded
3. Helps to attract more efficient worker in order to
increase their income
 Disadvantages:
1. Problem in setting the achievable standards that can
satisfy the employees
2. Some schemes may be difficult to administer.

20.  Earnings are related to effort and varies with the rate of
production.
Gross Wages = Number of units Produced x Rate Per
Unit
 Advantages:
1. Simple to calculate and easy to understand
2. High production rates result in reduced overhead cost per
unit
 Disadvantages
1. Quality may suffer and increase production costs
2. Trainees and inexperienced workers are penalized
3. No minimum wages.

21.  Provides security for employees receiving low wages
due to sickness, delays, machine breakdowns, tool
breakage, shortages, etc.
 A minimum wage is determined first and normally
based on the basic scheme.
 Advantages:
1. Workers will be more secure with the minimum wage.
 Disadvantages
1. Company need to liable a lot of cost even there is no
contribution by workers

22.  This method is implement in order to overcome the
problem of “inverse labour supply curve”. This is happen
and true when the income level of the employee is high.
 Differential piece rate method encourages workers to
increase production further by offering an increased rate
per unit at different level of production.
 Advantages:
1. Increase the morale of workers in order to improve their
works to achieve a good levels of rate per unit
 Disadvantages:
1. It may increase dissatisfaction to the inexperience workers.