This document discusses various aspects of labor cost accounting including: 1. Direct labor costs which are costs of workers directly involved in production, while indirect labor costs are of workers assisting production. 2. Labor turnover measures the percentage change in workforce and can be calculated using separation, replacement, or flux methods. 3. Job analysis studies job duties and requirements, and job evaluation assesses relative job values to determine appropriate wages. 4. Timekeeping records worker attendance, job times, and idle times for payroll and labor cost calculations. Remuneration includes time or piece wages plus incentives to boost productivity.

1. SRM INSTITUTE OF SCIENCE AND TECHNOLOGY
DEPT OF COMMERCE
UCM18501 COST ACCOUNTING I
UNIT IV LABOUR

2. LABOUR:
The cost of wages paid to workers during an accounting period on daily, weekly, monthly, or job
basis, plus payroll and related taxes and benefits . Labour cost means all amount which direct or
indirect is given to labourer or employee for his work for production .
TYPES OF LABOUR COST:
1. DIRECT LABOUR COST
Direct labour cost is the amount spent by the factory for those workers involved directly in the
manufacturing process. It can be measured conveniently and accurately on per unit of output
basis. Direct labour cost can be identified and allocated to the specific job or process or product.
It forms a part of the prime cost. The examples of direct labour costs are the payments made to
the workers engaged in making table, printing a book and constructing a dam etc.

3. 2. INDIRECT LABOUR COST
Indirect labour cost is the amount spent by the factory for those workers who are not directly engaged in the
production process. Indirect labour cost refers to the expenses incurred in remunerating such workers who
assist the direct labour to complete the manufacturing processes. It can not be identified and measured
accurately on per unit of output basis. It forms a part of the overhead costs. Payment made to the sweepers,
watchmen, cleaners, supervisors and accounting personnel are the examples of indirect labour cost.
LABOUR TURNOVER:
Labour turnover may be delined as change in labour force i.e., percentage change in the labour force during a
specific period. High labour turnover indicates that labour is not stabilised and there are frequent
changes by way of workers leaving the organisation. High labour turnover is to be avoided. At the
same time very low labour turnover indicates inefficient workers are being retained in the
organization.

4. METHODS OF MEASUREMENT OF LABOUR TURNOVER :
There are three methods of measuring labour turnover
(1) Labour Turnover under Separation Method: The basis of calculating labour turnover under this
method is the number of employees discharged during a period. It does not consider surplus labour being
discharged by the fim (retrenchment).
Labour Turnover = Number of employees left from the organisation during a period
Average number of employees during a period
(2) Labour turnover under Replacement Method: The number of employees recruited as
‘Replacements’ during a period is taken as basis for calculating labour turnover. This does not consider
expansion programmes.
Labour Turnover = Number of employees replaced during a period 100
Average number of employees during a period

5. (3) Labour Turnover Under Flux Method: This method takes into account the number of employees
who left the organisation and those recruited by the organization during the period.
Labour Turnover = Number of employees left + Number of employees recruited during a period
Average number of employees during a period
(4) Additions Method: Under this method of measurement of labour turnover, number of employees
recruited during a particular period alone is taken into consideration, including those recruited for
expansion programmes etc.
Labour Turnover = Number of additions during a period
Average number of workers during the period

6. JOB ANALYSIS:
Job analysis is the study of the job and identifying the duties and responsibilities involved in the
performance of the job, conditions for performance, nature of the job, qualifications to be possessed,
opportunities and privileges.
JOB EVALUATION :
Job evaluation is the process of studying and assessing the relative values of jobs within an industry, to
ascertain their comparative worth. In addition to indicating relative wage value, job evaluation serves
the following varied purposes:
a) It helps to know whether workers are placed in jobs best suited to them and to the advantage of
employers.
b) It assists the personnel department in recruitment of workers by indicating the responsibilities,
requirements and conditions of work and qualities required for each job.
(c) Job evaluation forms the basis for training schemes.

7. TIME-KEEPING DEPARTMENT:
This department is concerned with maintenance of attendancė time and job time of workers.
Attendance time is recorded for wage calculation and job time or time booking is considered for
computing time spent for each Department, Job, Operation and Process for calculating labour cost
department wise, job wise and of each process and operation.
Objectives of Time-Keeping:
(1) Ensures regularity of employees
(2) Enforces discipline among work force;
(3) Satisfies safety requirements
(4) Useful for preparation of payroll
(5) Keeps track of normal time, late attendance and early leaving of workers.
(6) Used for Overheads absorption on the basis of labour hours.

8. METHODS OF TIME KEEPING:
• Attendance Register method
• Metal Disc Method
Manual Methods
• Time Recording Clocks
• Dial Time Records
Mechanical
methods

9. TIME BOOKING :
Time spent by the workers on different jobs is called time booking. This is the productive time of
workers.
IDLE TIME:
The attendance time should agree with job time. Generally it does not happen on account of many reasons.
Eg.: time required for walking from factory gate to the department, time lost in waiting for materials, tools,
instructions, time lost due to break-down of machinery, power failure, etc. This time which is wasted is termed
as idle time. Idle time card is prepared to ascertain the idle time. The idle time card shows the reason for idle
time, so that action can be taken to prevent the avoidable idle time.
TYPES OF IDLE TIME:
 Normal Idle Time
 Abnormal Idle Time

10. REMUNERATION AND INCENTIVE:
Total wages earned by the employees is termed as remuneration. Time wages or piece wages earned
plus other financial incentives constitute the eamings of employees. Productivity depends mainly on
labour and, other things like better equipment, production planning are contributory factors to
higher productivity. More over attractive 'pay package will reduce labour turnover. In addition to
monetary incentives non monetary incentives also encourage employees to improve their
productivity. Non monetary Incentives include, promotional opportunities, training schemes etc.
METHODS OF REMUNERATION:
The remuneration paid to employees should reduce labour tumover, increase productivity of
employees and improve the quality of output. There are two basic methods of wage payment:
 Payment made on the basis of time spent by the workers in the factory irrespective of output
produced.
 Payment of wages on the basis of production or work done irrespective of time taken by the
worker

11. 1. TIME RATE SYSTEM:
 Flat time rate
 High day rate
 Measured day rate
 Graduated time rate
 Differential time rate
2. PIECE RATE SYSTEM:
 Straight piece rate
 Differential piece rate
i. Taylor’s differential piece rate system
ii. Merrick’s multiple piece rate system
iii. Gantt’s task and bonus plan

12. PREMIUM AND BONUS PLANS:
 Halsey Premium plan
Total earnings = Hours worked x Rate per hour + 50/100 (Time saved x Rate per hour)
= T x R + 50% (S – T)R
 Halsey – Weir Premium Plan
 Rowan System
Total earnings = Hours Worked x Rate per hour + Time saved / Standard time x Hours worked x
Rate per hour
= T x R + S – T/S x T x R

13. GROUP BONUS SYSTEMS:
 Budgeted Expenses Bonus
 Cost Efficiency Bonus
 Priest man system
 Towne’s Gain Sharing System
 Waste reduction scheme