Cost & Management Accounting Labour

Labour Direct Labour Indirect Labour Labour Cost Control Personnel Department Production or Engineering Department Time Keeping Department

Time Keeping Department A. Time Recording B. Time Booking

Time Recording Manual Methods: -Attendance Register -Disc System Mechanical Methods - Time Recording Clock - Dial Time Recorder Electronic Devices - Swipe Card - Bio-Metrics

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Time Booking Time Booking is tracing the time spent by the worker and identifying such time to jobs, processes or operation so as to calculate the wage cost of such processes, jobs or operations

Objectives of Time Booking Ascertainment of Labour Cost Control of Idle Time Determining Overhead Absorption Rate Evaluating Performance of Workers Determining Performance Bonus

Methods of Time Booking Daily Time Sheets Weekly Time Sheets Job Tickets Job Cards

Daily Time Sheets Daily Time Sheet Time Name: Date: Clock Card No. Week No. Machine No. Cost Centre. Work Order No. Description Work Done Time Hours Started Finished Workers’ Signature Foreman’s Signature Cost Office Reference

Weekly Time Sheets Weekly Time Sheet Name: Date: Clock card No. Week Ending: Cost Centre/Department: Day Job No. Description Time Total Hours For Cost Office Start Finish Normal OT Rate Amount Worker’s Signature Foreman’s Signature Cost Office Ref:

Idle Time Idle Time is the difference between the time for which payment is made and the actual time worked. It is the time during which the worker did not engage himself in productive work

Causes of Idle Time Avoidable Causes Unavoidable Causes

Avoidable Causes Failure of Power Supply Breakdown of Machinery Non-Availability of Material Strike Lock-out Natural Calamities

Unavoidable Causes Setting-up Time Movement from Gate to Production Floor Movement from One Job to Another Time to Take Instruction Tea-Breaks Personal Needs Minor Accidents Seasonality of Industry

Over-Time Work Carried on Beyond Normal Hours Double the Rate of Payment Should be Avoided Normal Causes OT –charged to the concerned Job or Batch Abnormal Causes OT-transferred to Costing Profit and Loss account Only on Proper Authorisation

Causes of Over-Time Completion of a Rush Order Meeting a sudden spurt in demand Completion of a Delayed Work Making up for Loss of Production due to Accidents, Flood or Other Natural Calamities

Labour Turnover The rate at which the employees are leaving the organisation in a year Also known as Attrition rate In IT industry, it was as high as 26-30% in 2007- It has come down to 12-16% in 2009 It is unhealthy for the organisation It should be reduced as much as possible through constant enquiry

Measurement of Labour Turnover Separation Rate = Replacement Rate Labour Flux Rate

Causes of Labour Turnover Avoidable Causes Unavoidable Causes

Avoidable Causes of Labour Turnover Low Wages Working Conditions Labour Relation Trade Union Rivalry No Job Satisfaction Lack of Training Bad Working Hours Lack of Incentives No Welfare Measures Lack of Job Security Unfair Promotion Supervisory Staff

Unavoidable Causes of Labour Turnover Death, Retirement or Disablement Marriage or Pregnancy in case of Women Better Career Opportunities Retrenchment Termination Change of Place of Work Change for Better Working Environment Domestic Responsibilities

Preventive Cost of Labour Turnover Higher Wages Better Welfare Measures Better Training Better Working Conditions Retirement Benefits

Replacement Cost of Labour Turnover Recruitment Cost Cost of Training Vacancy Time Gap and Loss of Output Adjustment Time for the New Workers Loss of Quality Strain on Tools & Equipment Higher Scarp and Defective Work

Measures to Reduce Labour Turnover Proper Recruitment Good Training Fair Wages Good Working Conditions Labour Amenities Labour Welfare Building up Loyalty Improving the Skills Improving Relations Communication of Policies Grievances Cell Workers’ Participation in Management

Features of a Fair Wage System Guaranteed Wage Uniformity Connected to CPI Recognition of Efficiency Incentive for Hard Work Equality Clarity Progressive Scale Consistency Flexibility Simplicity Fairness High Level of Morale Viability of operation

Systems of Wage Payment Time Rate Piece Rate Taylor’s Differential Piece Rates Halsey’s Incentive Plan Rowan’s Incentive Plan

Time Rate Wages are paid for the Time spent on the job Output is irrelevant Rate per Hour. Per Day, or per Month Suitable when Quality of work is important Trade Unions prefer this method Monthly Payment goes with other allowances

Advantages of Time Rate Simplicity Easier Computation Encourages Skill Development Guaranteed Wages Minimum Loss to Material and Equipmnets Equality of Wages Team Work Cordial Relation among the Workers Support of Trade Unions

Disadvantages of Time Rate System Abilities are not Differentiated No Incentive for Hard Work Requires Supervision Dissatisfaction of Efficient Workers Low Morale No Punishment for Inefficiency Labour Cost is not a variable cost under this system

Piece Rate System Rate per unit of output Output decides the wages payable A standard time is taken and the standard output is determined Time Wages for the standard output determines the piece rate

Advantages of Piece Rate System Efficiency is recognised Motivates the workers Reduces labour cost per unit Labour cost is variable Computation of labour cost in advance is easy Lesser Supervision Less Idle Time

Disadvantages of Piece Rate System Quality suffers Difficulty of Fixing the standard output and Piece Rate More scrap and Defective Work Damage to Tools and Equipment No Guaranteed Wages Uncertainty in Income Trade Unions Oppose the System

Taylor’s Differential Piece Rate System Two Piece Rates: Low Piece Rate and High No Guaranteed Wages Standard Output is fixed on Time and Motion Study Low Piece Rate at 83% of standard piece rate for output below standard High Piece Rate at 175% of standard piece rate for output above standard

Merits and Demerits of Taylor’s Method Increases Efficiency and Motivates the Worker ensuring a high level of morale Differentiates among workers leading to bad labour relation Detailed records are to be maintained regarding the output of the workers Demoralises human values

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