cost accounting prince dudhatra 9724949948

8/7/2019 Cost Accounting Prince Dudhatra 9724949948

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Cost Accounting

Labour costing

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Labour represents human contribution toproduction and it is second element of costafter materials.

In large scale use of machines inmanufacturing of products, role of labour inproduction cannot be under estimated.

Therefore there is need for properorganisation, accounting & control of labourcost.



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Direct Labour is the cost of that labour which

is directly engaged in production work and can

be conveniently identified or attributed wholly

to particular job, process or cost unit.

Wages of a machine operator is direst labour

cost. In manufacturing ready-made

garmentsWages paid to tailor is direct

wages.



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Indirect Labour is the wages paid to those

workers who are not directly engaged in

converting raw materials into finished goods.

Such cost can be conveniently identified with

a particular job, product or cost unit.

Supervisors, clerks, peons, instructors,

cleaners ,watchmen are examples of Indirect

workers.



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Organisation of accounting &control of

labour cost

There are 5 depts.in an organisation which dealwith labour.

1.Personnel Dept.: This is service dept.and is

mainly concerned with proper selection &training of workers & placing them to jobs forwhich they are best suited.

2.Engineering Dept.This dept. prepares plans &

specifications of job, makes job analysis, makesprovision for safe working conditions& supervisesproduction activity.



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3.Time keeping Dept.This is concerned with

recording of workers time.

The recording of time put in by workers isrequired not only for attendance & wage

calculations purpose but also for the purpose

of cost analysis & apportionment of labour

cost over various jobs.



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4.Pay roll dept.This dept. maintains record of

job classification & wage rate of employee and

performs the function of computation of

wages payable to them by preparing payroll or

wage sheet. Also responsible for disbursement

of wages.



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5. Cost Accounting Dept.This dept.

accumulates and classifies all cost datas of

which labour is imp. element.

It analyses payroll & prepares routine and

special labour costs reports for submission to

mgt. so that proper control may be exercised

on labour cost.



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Labour Turnover

As it is known to all that it is common feature that

some workers leave the employment and new

workers join in place of those leaving.This change

in workforce is known as labour turnover.

Defined: The rate of change in composition of

labour force in an organisation

Labourturnover varies between different trades &part time or seasonal labour is employed ,the

rate will be higher.



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Measurement of labour turnover

There are 3 alternative methods by which labourturnover rate may be computed:

1. Seperation method:This method takes into

account only those workers who left theorganisation.

2. Replacement method:only those new workerswho have joined place who have left.

3. Flux method: Total change in composition ofthose force due to seperation & replacement ofworkers.



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1.Seperation method:

Labour turnover rate=

no. of workers left during period

average no. of workers during period2. Replacement method:

Labour turnover rate=

no. of workers replaced during period

Average no.of workers during the period



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Flux method:

Labour Turnover Rate=

No.of workers left + no.of workers replaced Average no.of workers



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Causes of Labour Turnover

Causes of labour turnover classified into 2

categories:

I Avoidable causes: 1. Dissatisfaction with the job

2. Dissatisfaction with remuneration

3. Dissatisfaction with working conditions 4.Strained relationships with fellow workers or

collegues.



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5.other factors like lack of training facilities,

inadequate security, retirement benefits.

Unaviodable

Causes:

1.Change of service for personal benefit

2.Retirement due to old age or ill health

3.Death



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Time keepingdepartment:-

This is concerned with recording of workers time.

The recording of time put in by workers is required not only for

attendance and wage calculations purpose but also for the

purpose of cost analysis and apportionment of labor cost overvarious jobs.

There are 2 functions of this department

Time keeping:- recording of the time for the attendance

purpose and calculation of wages.

Methods of time keeping:-

attendance register

Token or disk method

Time recording clock



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Time booking:- records the time spent on different jobs for

determining the labor cost. Here it determines the total time spent

by a worker for a particular job.

Job ticket

Daily time sheet Combined time and job card.

Weekly time sheet

Piece work card



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Payroll Dept.

Imp. functions of payroll dept. in accounting

and control of labour costs are: 1.To maintain record of job

classification,dept.and wage rate for each

employee.

2.To verify and summarise time of each worker

as shown in daily time cards



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3.To prepare payroll and compute wages

earned by each employee.

4. To compute payroll deductions 5. To maintain permanent payroll record of

each employee.

6.To disburse wage payments



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Idle Time

Idle time represents loss of labour time.

Idle time represents the time for which they

are paid but no production is obtained. Examples: Time lost between factory gate &

dept.time

Time when production is interupted bymachine maintenance, Tea breaks etc.



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Causes of Idle time

Idle time may occur due to :

Productive causes

Administrative causes Economic causes



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Productive causes:

Idle time due to machine breakdown

Power failure Waiting for tools/rawmaterials

Waiting for work, instructions



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Administrative causes:

Idle time may be caused due to administrative

decisions. For example when there is surplus capacity of

plant & machinery which mgt. decides not to

work, there may be some idle time due to

administrative decision.



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Economic Causes:

Idle time may be caused by fall in demand ofproducts---due to severe competition,

seasonal nature of certain industries-whereproduction cannot be evenly distributedthroughout the year. such labour force isutilised for doing some other jobs& if suchcomplimentory jobs cannot be found, there issome idle time which is beyond control.



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4. Production should be properly planned.



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Labour Remuneration

Remuneration is used to cover total

monetary earnings of employees.

It includes wages according to time or piecebasis & other financial incentives.

The efficiency in production should be

increased making effective utilisation of plant

,using improved equipment & so on.



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Methods of Labour

Remuneration(Methods of wage

payment)

3 methods:

1. Time Rate System 2. Piece Rate System

3.Incentive schemes



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Time Rate System:

This is oldest system of wage payment.

In this time is made on basis of payment. Labour is paid for the time hours worked

irrespective of volume of production during

that time. Wages=Hours worked x Rate per hour or

Wages = Days worked x Rate per day



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Piece rate system does not give any

consideration to time taken by worker in

completing work. Only quantity of work is

taken into account for calculating wages



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Incentive Schemes :

Principal Incentive plans:

1.Halsey plan 2.Rowan plan



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1. Halsey plan

Introduced by F.W. Halsey.

It is simple combination of piece wage andtime wage system.



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Advantages:

This plan provide scope to earn bonus on each

individual job. It provides strong incentive to increase

production.

It provides minimum wages according to time

rate & thus provides sense of security to

workers.



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Disadvantages:

The workers may be rushed to work but

neglect quality of production in order to earnextra bonus.



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Halsey - Weir Plan:

This system was introduced by G.T. Weir and

is modified form ofOriginal Halsey Plan.The only difference between two is that

under Halsey-Weir plan bonus is equal to 30%

of time saved.



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Rowan Plan:

This plan was introduced by David Rowan and

is similar to Halsey plan, except in calculationof bonus.

Bonus is that proportion of wages of time

taken which the time saved bears to standard

time.



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t

Bonus=

Time saved

-------------------------x Time taken x Rate per hourStandard time

Total earnings=(time taken x rate per

hour)+bonus



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Advantages:

It guarantees wages according to time basis.

Upto 50% of time saved,it provides a higherbonus than under Halsey plan.



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Disadvantages:

It is complicated method and is not easily

understandable by the workers.



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Comparison of Halsey and Rowan plan:

If time saved is less than 50% of time

allowed,Rowan plan is benificial for theworker.

If time saved is more than 50% of standard

time ,Halsey plan is advantageous to the

worker.



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Calculate total earnings & effective wage rate

per hour under Halsey plan:

Time allowed 48 hours

Time taken 40 hours

Rate per hour Rs.10

Solution:Total earnings =40hrsxRs.10+1/2(8hrsx Rs.10)

=400+40=Rs.440



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Solution:Total earnings =40hrsxRs.10+1/2(8hrs

x Rs.10)

=400+40=Rs.440

Effective wage rate per hour=440/40=Rs.11



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Eg.2

A worker is allowed 60 hours time for

completion of job and hourly rate is Rs.4.The

actual time taken by worker is 40 hours.

Calculate wages of worker under Halsey plan.

Above eg. Calculate total wages of worker

under Rowan plan.



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Eg.1 From the following data given by

personnel dept. Calculate labour turnover rate

by applying :

1. Separation method

2. Replacement method

3.Flux method



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No. of workers on payroll:

At beginning of month 900

At end of month 1100 During the month ,10 workers left ,40 persons

were discharged and 150 workers were

recruited. Of these 25 workers are recruited in

vacancies of those leaving, while rest were

engaged for an expansion scheme.



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Eg.3 A workmans wages for a guaranteed 44

hour week is Rs. 0.75 per hour.

The estimated time to produce one article is

30 mins,and under incentive plan the time

allowed increased by 20%.

During a week worker produces 100 articles.

Calculate wages under following methods:

1.Time rate.2.Rowan system.3.Halsey system.



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Piece rate remuneration methods

Under piece rate system of wage payment,

the workers efficiency is measured in terms

of production against standard set .

The worker who produces more units than or

Standard set for him ,is eligible for bonus in

piece rate wage system.



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Advantages:

Employee morale is more due to higher

earnings

Optimum utilisation of resources.



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Demerits:

Quality may deteriorate in order to increase

production quantity to earn more.

It involves more calculations and detailed

production records are to be maintained.

The workers health may be affected due to

over strain taken by the wokers to earn more

wages.



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Straight piece rate method

Piece rate with guaranteed Time rate method

Differential Piece rate method Taylors Differential Piece rate system

Merricks Differential Piece rate system



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Requisites of Good Wage Incentive Plan



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Eg.4

The three workers Govind, Ram and Shyam

produced 80,100,120 pieces of a product x on a

particular day inMay 2008 in a factory.

The time allowed for 10 units of product x is 1

hour and their hourly rate is Rs.4.

Calculate for each of these workers :Earnings forthe day under:1.straight piece rate.2.Halsey

premium bonus plan.3.Rowan plan.



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Note1:

Particulars Govind Ram Shyam

Production(units) 80 100 120

Time allowed@10pieces per hour(hrs) 8 10 12

Time taken(1 day=8hrs) 8 8 8

Time saved(hrs) 0 2 4

Piece Rate(Rs.4/10)(Rs.)0.40 0.40 0.40



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Computations:

1.Straight Piece Rate=

No. of pieces produced x piece rate Govind=80 pieces x Re.0.40=Rs.32

Ram=100 pieces x Re.0.40=Rs.40

Shyam=120 pieces x Re.0.40=Rs.48



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2.Halsey Plan:

3.Rowan plan:



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Piece rate remuneration methods

1.Straight Piece rate method

Wages=No.of pieces produced x Rate per piece

Under this method, a fixed wages rate is paid for

each unit of production, job completed or no.of

operations completed irrespective of time spent

on it .

This method is applicable where production isrepetitive in nature &cannnot be applied to work

which require artistic work.



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Contd.

The workers pay depends upon his output andnot upon the time he spends in the factory.

This method will act as an incentive to efficient

workers and act as disincentive to inefficientworkers.

Disadvantage is Prod.may need inspection forquality-stoppage of work due to abnormal causes

like machine breakdown, power failure.etc.maycause workers to loose their wages & feelinsecure.



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2.Differential Piece Rate method:

Under this method ,an incentive is offered toworkers to increase their output by paying

higher rates for increased levels of production. Under straight piece rate system, time factor is

not taken into consideration,but underdifferential piece rate plan,a series of prod.Target will be established and as each target isreached new piece work rate will apply.



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2.(I) Taylors Differential Piece Rate System:

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