Chapter I

METHODS OF COSTING
The methods or types of costing refer to the techniques and processes employed in the ascertainment of
costs. Several methods have been designed to suit the needs of different industries. The method of costing to
be applied in a particular concern depends upon the type and nature of manufacturing activity. The methods
are:
1. Job order costing. This method "applies where work is undertaken to customers' special requirements."
Cost unit in job order costing is taken to be a job or work order for which costs are separately collected and
computed. A job, big or small, comprises a specific quantity of a product or service to be provided as per
customer's specifications. Industries where this method is used include printing repair shops, interior
decoration, painting, etc.
2. Contract costing or terminal costing. This is a variation of job costing and, therefore, principles of job
costing apply to this method. The difference between job and contract is that job is small and contract is big. It
is well said that ‘a contract is a big job and a job is a small contract. The cost unit here is a 'contract' which is
of a long duration and may continue over more than one financial year. Contract costing is most suited to
construction of buildings, dams, bridges and roads, shipbuilding, etc.
3. Batch costing. Like contract costing, this is also a variation of job costing. In this method, the cost of a batch
or group of identical products is ascertained and therefore each batch of products is a cost unit for which costs
are ascertained. This method is used in companies engaged in the production of readymade garments, toys,
shoes, tyres and tubes, component parts, etc.
4. Process costing. As distinct from job costing, this method is used in mass production industries
manufacturing standardized products in continuous processes of manufacturing. Costs are accumulated for
each process or department. Here raw material has to pass through a number of processes in a particular
sequence to completion stage. In order to arrive at cost per unit, the total cost of a process is divided by the
number of units produced. The finished product of passed on to the next process as raw material. Textile mills,
chemical works, sugar mills, refineries, soap manufacturing, etc., may be cited as examples of industries which
employ this method.
5. Operation costing. This is nothing but a refinement and a more detailed application of process costing. A
process may consist of a number of operations and operation costing involves cost ascertainment for each
operation instead of a process. This method provides minute analysis of costs and ensures greater accuracy
and better control.
6. Single, output or unit costing. This method of cost ascertainment is used when production is uniform and
consists of a single or two or three varieties of the same product. Where the product is produced in different
grades, costs are ascertained grade-wise. As the units of output are identical, the cost per unit is found by
dividing the total cost by the number of units produced. This method is applied in mines, quarries, brick kilns,
steel production, flour mills, etc.
7. Operating or service costing. This method should not be confused with operation costing. It is used in
undertakings which provide services instead of manufacturing products. For example, transport undertakings
(road transport, railways, airlines, shipping companies), electricity companies, hotels-, hospitals, cinemas, etc.,
use this method. The cost units are passenger-kilometer or tonne-kilometre, kilowatts hour, a room per day in
a hotel, a seat per show in a cinema hall, etc. This method is a variation of process costing.
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8. Multiple or composite costing. It is an application of more than one method of cost ascertainment with
respect to the same product. This method is used in industries where a number of components are separately
manufactured and then assembled into a final product. For example, in a television set manufacturing
company, manufacture of different component parts may require different production methods and thus
different methods of costing may have to be used. Assembly of these components into final product requires
yet another method of costing. Other examples of industries which make use of this method are air-
conditioners, refrigerators, scooters, cars, locomotives, etc. one process is

TECHNIQUES OF COSTING
It is the type of industry that determines which of the eight methods of costing discussed above will be used in
a particular enterprise. However, in addition to these methods, there are certain techniques of costing which
are not alternatives to the methods discussed above. These techniques may be used for special purpose of
control and policy in any business irrespective of the method of costing being used there. These techniques
are briefly explained below.
1. Standard costing: This is a very valuable technique of controlling cost. In this technique, standard cost is
pre-determined as target of performance, and actual performance is measured against the standard. The
difference between standard and actual costs are analyzed to know the reasons for the difference so that
corrective actions may be taken.
2. Budgetary control. Closely allied to standard costing is the technique of budgetary control. A budget is an
expression of a firm's business plan in financial form and budgetary control is a technique applied to the
control of total expenditure on materials, wages and overheads by comparing actual performance with
planned performance. Thus, in addition to its use in planning, the budget is also used for control and co-
ordination of business operations.
3. Marginal costing. In this technique, separation of costs into fixed and variable (marginal) is of special
interest and importance. This is so because marginal costing regards only variable costs as the cost of the
products. Fixed cost is treated as period cost and no attempt is made to allocate or apportion this cost to
individual cost centers or cost units. It is transferred to costing profit and loss account of the period. This
technique is used to study the effect on profit of changes in volume or type of output.
4. Total absorption costing. It is a traditional method of costing whereby total costs (fixed and variable) are
charged to products. This is in complete contrast to marginal costing where only variable costs are charged to
products. Although, until recently, this was the only technique employed by cost accountants, but now a days
it is considered to have only a limited application.
5. Uniform costing. This is not a separate technique or method of costing like standard costing or process
costing. It simply denotes a situation in which a number of firms adopt a uniform set of costing principles. It
has been defined by CIMA, London as "the use by several undertakings of the same costing principles and/or
practices." This helps to compare the performance of one firm with that of other firms and thus, to derive the
benefit of anyone's better experience and performance.
ADVANTAGES OF COST ACCOUNTING
The deficiencies of financial accounting may be re-stated as the advantages of cost accounting because the
latter has emerged to overcome the limitations of the former. However, the extent of the advantages

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obtained will depend upon the efficiency with which the cost system is installed and also the extent to which
the management is prepared to accept the system.

A. Advantages to Management
1. Reveals profitable and unprofitable activities. A system of cost accounting reveals profitable and
unprofitable activities. On this information, management may take steps to reduce or eliminate wastages and
inefficiencies occurring in any form such as idle time, under-utilisation of plant capacity, spoilage of materials,
etc.
2. Helps in cost control. Cost accounting helps in controlling costs with special techniques like standard
costing and budgetary control.
3. Helps in decision making. It supplies suitable cost data and other related information for managerial
decision making such as introduction of a new product line, replacement of old machinery with an automatic
plant, make or buy, etc.
4. Guides in fixing selling prices. Cost is one of the most important factors to be considered while fixing
prices. A system of cost accounting guides the management in the fixation of selling prices, particularly during
depression period when prices may have to be fixed below cost.
5. Helps in inventory control. Perpetual inventory system, which is an integral part of cost accounting, helps in
the preparation of interim profit and loss account. Other inventory control techniques like ABC analysis, level
setting, etc., are also used in cost accounting.
6. Aids in formulating policies. Costing provides information that enables the management to formulate
production and pricing policies and preparing estimates of contracts and tenders.
7. Helps in cost reduction. It helps in the introduction of a cost reduction programme and finding out new and
improved ways to reduce costs.
8. Reveals idle capacity. A concern may not be working to full capacity due to reasons such as shortage of
demand, machine breakdown or other bottlenecks in production. A cost accounting system can easily work
out the cost of idle capacity so that the management may take immediate steps to remedy the position.
9. Checks the accuracy of financial accounts. Cost accounting provides a reliable check on the accuracy of
financial accounts with the help of reconciliation between the two at the end of the accounting period.
10. Prevents frauds and manipulation. Cost audit system, which is a part of cost accountancy, helps in
preventing manipulation and frauds and thus reliable cost data can be furnished to the management and
others.
B. Advantages to workers: The important benefits of cost accounting to the employees of a business
enterprise are as follows:
a) Fair wage policy: Cost data provide basis for devising different wage systems. It helps in the development!
^ a wage policy based on productivity which is acceptable to the workers and to the management.
b) Recognition of efficiency: Cost accounting lays down standards of performances of employees. These
standards enable the management to distinguish efficient and less efficient workers.
c) Incentive system of payment: Payment by result is the system of rewarding workers of superior
efficiently. It can be adopted where efficiency is measured. Thus cost accounting helps efficient workers to

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earn more and gives an opportunity to the less efficient workers to increase their efficiency and earn higher
wages.
d) Higher share of profit: Cost accounting aims at achieving higher rate of productivity; lower cost and larger
profit. Where the concern earns higher profit a larger part of it would be distributed among the workers as
bonus.
e) Cordial relation: Cost accounting sets standards of performances in easily understandable language.
Performances of workers are measured accurately and paid according to their performances. Hence the
workers need not suspect the bonafides of the management.
C. Advantages to creditors: Creditors are interested in the long-term solvency of the business enterprise. Cost
accounting provides data to measure the present success and forecast the future prospects of the business.
On the basis of this report creditors, debenture holders, short term lenders may assess the soundness of the
business before extending credit.
D. Advantages to society: Cost accounting is beneficial to the consumers also. In large it helps in the
following forms:
a) Lower prices: Optimum utilization of resources, constant attempt to lower the cost and to. increase
efficiency bring down the cost of production and distribution. Cost reduction brings down the prices. Thus cost
accounting reduces the prices to the consumers.
b) Continuous supply of goods: Efficient management of resources, lower and stable prices lead to continued
existence of a business concern.
c) Higher standard of living: Products at lower prices, new products and stable supply to improve the
standard of living of the public.
d) Inter-sector comparison: Cost records of public sector undertakings provide an excellent opportunity of
comparison with that of private sector. This inter-sector cost comparison will indicate the areas of public
sector undertaking where effective control is required. This will help to improve the efficiency of public sector
undertakings.
E. Advantages to the Government: The important benefits of cost accounting to the government are as
follows:
a) Assessment of tax liability: Cost accounting facilitates the assessment of excise duty, income tax etc.
b) Policy framing: Formulation of policies regarding industry, export, import, taxation etc. makes use of cost
information.
(c) Planning: Preparation of National plan for integrated economic development is facilitated by cost
accounting.
(d) Measures efficiency: Cost accounting measures efficiency and profitability of public sector undertaking to
justify its running.
(e) Administration: Many of the principles of cost accounting are used in general administration by the
Government.

Chapter IV
STOREKEEPING

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Storekeeping is the function of receiving of materials, storing them and issuing these to workshops or
departments. As a substantial amount of a company's working capital is invested in stores, storekeeping
acquires special importance. The stores department is under the control of a person known as 'storekeeper' or
stores superintendent. He should be a man of undoubted integrity, suitably trained and experienced and well
versed in the principles of good storekeeping.
Objectives of Good Storekeeping
Good storekeeping should achieve the following objectives:
1. Protection of materials from losses due to fire, evaporation, obsolescence etc.
2. Avoiding over-stocking and under-stocking.
3. Economical use of storage space.
4. Up-to-date stores records.
5. Immediate location of materials required.
6. Facilitating perpetual inventory.
7. Speedy receipts and issues of stores.
8. Minimize storage cost.
Functions and Duties of Storekeeper
Various functions and duties of a storekeeper are as follows:
1. Maintaining materials in a tidy manner.
2. Proper maintenance of records of materials received, issued to production and in stock.
3. Accepting materials into the stores after having ascertained that the delivery complies with specifications
detailed on Goods Received Note.
4. Issuing materials against duly authorized Stores Requisitions.
5. Requisitioning further supplies from the purchasing department when re-order level is reached on any
material.
6. Preventing the entry of unauthorised persons in the storeroom.
7. Periodic comparison of bin card balances with physical quantities in the bins.
8. Advising management on obsolete and slow moving stocks.
STORES RECORD (PART OF PERPETUAL INVENTORY SYSTEM)
1. Bin Card (Stock Card)
A bin is a container in which material is kept. Separate bin cards are maintained by the storekeeper for each
item of material in store. The bin cards show the details of receipts and issues of materials and the balance in
stock at any time. This record is of immense help to the storekeeper in controlling the stock position.
A bin card is attached to the bin, drawer or any other container in which material is stored. An entry is made at
the time of each receipt or issue and the new balance in stock is calculated. All these entries of receipts and
issues are supported by documents, such as Goods Received Note, Materials Return Note, Stores Requisition
Note, etc. Alternatively, bin cards are kept on a table in trays.
A bin card is a quantitative record of receipts, issues and closing balances of material items in store. It does
not contain information about the prices of materials.

2. Stores Ledger
The stores ledger is maintained in the cost accounting department and is one of the basic records for material
accounting in a cost system. This record gives the same information regarding stores as bin card and in
addition, it gives the monetary values of materials. Separate ledger folios are maintained in it for each item
of material. The ledger sheets may be in loose leaf form or separate bindings may be used for each type of
material.

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There are mainly three sections in this ledger, i.e., receipts, issues and balance, each of these with appropriate
sub-divisions showing date, quantity, unit price and total cost.

The differences between bin card and stores ledger are as under: (Maybe be asked for 6 MARKS )
Bin Card Stores Ledger
1. Maintained by stores Dept. Maintained by Cost Accounting Dept
2. Attached to the Bin Kept in the cost office.
3. Records quantities only. Records both quantities & values.
4. Transactions are posted Sometimes posted periodically.
continuously.
5. Each transaction is entered Transactions may be posted summarily.
individually.

6. Inter department / job Inter job / department transfers are also entered for costing
transfers are not entered purpose.

DOCUMENTS AUTHORISING MOVEMENTS OF MATERIALS:

1.Goods Received Note
A reference was made to this note in the purchase procedure discussed earlier. It was stated that a copy of
Goods Received Note is sent to the storekeeper along with the materials for his records. The storekeeper uses
this document for posting on the receipt side of the bin card.
2.Materials Requisition Note(MRN) (or Stores Requisition Note)
It is a document which is used to authorize and record the issue of materials from store. The storekeeper
should issue materials on the presentation of duly authorized stores requisition note. It should be appreciated
that this is a key document in virtually all costing systems and serves the dual purpose of:
(a) Authorizing the storekeeper to issue material, and
(b) Providing a written record of usage of materials.
A separate requisition may be prepared for each item of material or a single requisition may be prepared to
cover the issuance of a number of items. The stores requisition note may be prepared in duplicate or
triplicate. The original copy is passed to the stores department while duplicate is retained by the department
requisitioning materials. When only two copies are prepared, the stores department copy is also routed to the
costing department. However, if the requisition is prepared in triplicate, two copies are sent to the stores
department out of which it sends one to the costing department for necessary accounting entries. The stores
requisition note is used for making entries in bin card, stores ledger, materials abstract, etc.
3.Bill of Materials (Specification of Materials)
It is a master requisition which lists all the materials required for the completion of a job. So, a bill of materials
is a special form of stores requisition note which is generally used by departments having standard materials
requirements or a comparatively fixed list of materials. For instance, in assembly type production, there will be
no variation in the amount of materials which are used. In such a case, much time would be saved if a bill of
materials (on which names or codes of all materials required are pre-printed) is used because then only
quantity is to be indicated against the code or name of material required Where the job is of a special nature,
a special bill of materials must be prepared and a copy of this is generally passed to the stores department in
advance to enable it to arrange for materials not in stock.
The main advantages of using bill of materials are:

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1. It eliminates the need for preparing separate material requisition notes for various types of materials
required for a particular job. This saves time and promotes efficiency.
2. The storekeeper can be given advance warning of requirements of materials usually not available in store.
It thus avoids delay in production.
3. When pre-printed forms of bill of materials are used in standard type of output, it saves a lot of clerical
labor and risk of error is also reduced.
4. Costing of jobs becomes easier and speedier.
4. Materials Return Note
When materials issued are in excess of requirements, the unused materials are returned to stores together
with a Materials Return Note. This note is similar to Materials Requisition Note, but is normally printed in a
different color for easy identification. When materials are received in the stores, these should be placed in
appropriate bins and entries made in the bin card. (See Fig. 2.13)
Materials Return Note is usually prepared in triplicate by the stores clerk. One copy is sent to the department
that is returning materials. Second copy is sent to the cost office for appropriate entries and the third copy is
retained by the stores department for entry in the bin card.
5. Materials Transfer Note
Materials may have to be sometimes transferred from one job to another. This may be either because excess
materials were issued to a job and surplus materials are directly transferred to another job or because
materials issued to a less urgent job are transferred to a more urgent job.
When such transfers are not permitted, the surplus materials are returned to the stores and then re-issued to
another job. This results in extra transport costs. Thus, when materials are bulky, such transport costs may be
heavy, which can be avoided if direct transfers are permitted.
Where such transfers are permitted, these should be supported by a special document known as a Material
Transfer Note. Failure to record transfer of costs would result in incorrect costs of the jobs concerned.`

METHODS OF PRICING MATERIAL ISSUES

When materials are issued from stores to production department, a question arises regarding the price at
which materials issued are to be charged. This is because the same type of material may have been purchased
in different lots at different times at several different prices. This means that actual cost can take on several
differed values and some method of pricing the issue of materials must be selected. This basic problem of
pricing the issue of materials is illustrated in the following stores ledger account. (Figures are assumed).}
Stores Ledger Account
Date Receipts Issues Balance
2004
Ref. Qty Rate Ami. Ref. Qty. Rate A Qty- Rate Amt. Rs.
(GRN Unit Rs. Rs. (MRN) Units Rs. mt Units Rs.
) .
Rs.
1 July Op.B 200 5 1,000
th
4 July 430 500 6 3,000 200 5 1,000
500 6 3,000
8 July 310 800 6.50 5,200 200 5 1,000
500 6 3,000
800 6.5 5,200
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10 July 115 900 600
? ? ? ?
How to price the issue of 900 units on 10 July and how to value the stock of 600 units in hand on this date?
Various alternative issue prices that could possibly be charged are Rs 6 per unit i.e the price paid on 4 july or
Rs 6.50 per unit i.e price paid on 8 July, or Rs. 5 per unit i.e the price of opening stock or an average of these
prices or some other price. The question is whether it should be original purchase price or the current market
price on the date of issue or should some other price be used for this purpose . The question is important
because the pricing directly affects the amount of profits or loss reported for the accounting period. If the
Method chosen puts higher closing stock, it will result in higher profit and vice versa, lower valuation stock will
result in lower profits.
Therefore there are some suggested methods for pricing the material issues. They are

1. First-in First-out (FIFO) Method

This method is based on the assumption that materials which are purchased first are issued first. It uses the
price of the first batch of materials purchased for all issues until all units from this batch have been issued.
After the first batch is fully issued, After price of the next batch received becomes the issue price. Upon this
batch also setting fully used, the price of the still next batch is used for pricing and so on. In other words, the
materials are issued at the oldest cost price listed in the stores ledger account and thus, the materials in stock
are valued at the price of the latest purchases.
Three important effects of using FIFO method are:
la) Materials are priced at the actual cost.
(b) Charge to production for material cost is at the oldest prices of materials in stock.
(c) Closing stock is valued at the latest price paid.
GRN = Goods Received Notes; MRN = Material Requisition Note
It should be noted that the assumption of FIFO is only for accounting purpose i.e., the physical flow of
materials need not necessarily be in the order of the flow of cost, though normally materials would be
expected to move out of stock on a FIFO basis because oldest stocks are usually used up first.

Advantages The following advantages are claimed for FIFO method:

1. It is based on a realistic assumption that materials are issued in the order of their receipts.
2. Materials are issued at actual cost and thus no unrealised profit/loss arises from the operation of this
method.
3. Valuation of closing inventory is at cost as well as at the latest prices paid.
4. This method is easy to understand and simple to operate. Disadvantages The main disadvantages of this
method are:
1. As materials are charged to production at the old prices, the cost of production may lag behind the current
economic values.
2. This method does not permit comparison of the costs of similar jobs or cost units because similar jobs
simultaneously started may be charged materials at different prices.
3. When prices are subject to frequent changes, this method involves cumbersome records and calculations.
In periods of rising prices, the FIFO method produces higher profits and results in higher tax liability because
lower cost is charged to production. Conversely, in periods of falling prices, the FIFO method produces lower
profits and results in lower taxes because they are derived from a higher cost of goods sold.

2. Last-in First-out (LIFO) Method (Not included in syllabus)

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This method operates in just the reverse order of FIFO method. It is based on the assumption that the last
materials purchased are the first materials issued. Thus, the price of the last batch of the materials purchased
is used first for all issues until all units from this batch have been issued, after which the price of the previous
batch of materials purchased is used. It should be noted that physical flow of materials may not conform to
LIFO assumption.
Three points should be noted regarding this method:
(o) Material issues are priced at actual cost.
(b) Charge to production for material cost is at latest prices paid.
(c) Closing stock valuation is at the oldest prices paid and is completely out of line with the current prices.
under FIFO method because cost will be charged at current prices which are at higher kvel. Conversely, in
periods of falling prices, closing stock is valued at old prices which are at higher level and thus, profit would
also be higher resulting in higher tax liability.

3.Average Cost Methods

These methods are based on the assumption that when materials purchased in different lots are stored
together, their identity is lost, and therefore, issues should be charged at an average price. Basically, average
prices are of two types—simple average and weighted average.
A.Simple Average Method (Not included in syllabus)
Simple average price is calculated by adding all the different prices of materials in stock, from which the
materials to be priced could be drawn, by the number of prices used in that total. This method does not take
into account the quantities of materials in stock while calculating the average. Suppose, the following three
lots of materials are in stock when material is to be issued:
500 units purchased @ Rs. 20 200 units purchased @ Rs. 21 700 units purchased @ Rs. 22
20+21+22 Simple Average Price =21. .

Advantages and Disadvantages of Simple Average Method

The only advantage that this method enjoys is its simplicity. No more can be said in favour of this method as it
pays no consideration to the relative quantities held at each price. For this reason, this method is considered
unscientific and it usually produces unsatisfactory results. The value of closing stocks may be sometimes
negative, which is quite absurd. For instance, if 100 units at Rs. 10 each and 1000 units at Rs. 2 each are held in
stock at a total value of Rs. 3,000, when 600 units are issued at a simple average price of Rs. 6, i.e., (10 + 2) + 2,
the closing stock of 400 units will be valued at a negative value of Rs. 600, which is absurd. These figures have
been exaggerated to illustrate the point. Another disadvantage of this method is that it does not charge
materials at actual cost and thus, may result in unrealized profit or loss.
B. Weighted Average Method
This method gives due weightage to the quantities held at each price when calculating the average price. The
weighted average price is calculated by dividing the total cost of material in stock, from which the material to
be priced could, have been drawn, by the total quantity of material in that stock. The simple formula is that
weighted average price at any time is the balance value figure divided by the balance units figure.

The fresh issue rate is determined after each purchase and not at the time of each issue. Thus, as soon as fresh
supply is received, a new price is calculated and all issues are then valued at that price until the next supply is
received when a new issue price will be calculated.
Advantages This method has the following advantages:
1. This method smoothens out the effect of fluctuations in purchase price. It is thus, particularly advantageous
where price variations are wide so that extreme prices are ironed out.
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2. The new issue price is calculated at the time of each new purchase and not at the time of each issue. Since
receipts are much less frequent than issues, the work of making calculations is reduced.
3. No unrealised profit or loss arises by the use of this method.
Disadvantages 1. Issue prices may not be at the current market prices.
2. The method calls for many calculations where purchases are made frequently.
3. To avoid errors, the average price must be calculated to a sufficient number of decimal points. This makes
the operation of the method somewhat tedious.
4. Excessively high or low prices paid in the past are reflected in the average for a considerable time after the
expensive (or inexpensive) material has been consumed.

Chapter VI
LABOUR
TIME-KEEPING:
It means recording arrival and departure time of workers for attendance purpose and for calculation
of wages; and

Methods of Time-keeping
There are mainly three methods for recording attendance of workers.
1. Attendance registers. In this method, attendance of each worker is recorded in the register
maintained for this purpose. This register provides sufficient number of columns for attendance of
each worker. Entries in the arrival and departure columns may be made by the foreman or the worker
himself. If workers are literate, they should be required to sign against their entries to avoid any
dispute later on. Separate attendance register may be maintained in each department if the number
of workers is large, otherwise one register will serve the purpose.
This method is quite simple and cheap. But it can be used only when the number of workers is small.
In such cases, generally there is no need for a separate timekeeper as the work is done by the
foreman.
2. Token or disc method. Each worker is allotted an identification number and that number is
suitably painted or engraved on a round metal token (or disc) with a hole in it. All such tokens are
hung in a serial order on a board at the factory gate. As the worker arrives, he removes his token from
the board and puts it in a box kept nearby or hangs it on another board which is specially kept for this
purpose. After the fixed time, the box or the second board is removed. Those coming late have to
hand over their tokens personally at the time office so that exact time of their arrival can be noted.
The time office records attendance on the basis of tokens in the box. The absentees are indicated by
the missing tokens. Similar procedure is followed at the departure time in the evening.
This method is not fool-proof as a worker may try to get his absentee friends marked present by
dropping their tokens in the box.
3. Time recording clocks. Unlike the first two methods, this is a mechanical method of recording
attendance and proves quite useful when the number of workers is fairly large.
Each worker is allotted a Clock Card which bears his identification number, name, department, etc.
These cards are kept in a rack in a serial order. There are usually two racks—an 'In' rack and an 'Out'
rack. On arrival, the worker will pick up his card from the 'Out' rack, put it in the slot of the clock,

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press a button and the exact time is printed on the card. After this the card is put in the 'In' rack. An
inspection of the 'Out' racks will reveal absentees.
4. Biometric time and attendance system:
This system has brought more precise system to measure group or individual’s activities and
attendance as well. Biometric attendance machine captures your unique biological/physical feature
such as your hand or finger print, and sometimes even your voice as a record for identity verification
and allows you to perform something that you are authorized to do. Biometric attendance system is a
foolproof technology to ensure the accuracy of attendance and is useful to the ones who deal with
large number of employees. “Supreme Inc,” “Green Bit” companies are big market player in this
product.

TIME-BOOKING :
In addition to recording worker's time of arrival and departure, it is necessary to record the details of
work done by workers and the time spent on each job or process. Recording of worker's time spent
on different jobs is known as time-booking. The objectives of time booking are:
(/) To ensure that the time for which a worker is paid is properly utilized;
(//) To ascertain the labour cost of work done;
(///) To provide a basis for apportionment of overheads;
(/v) To ascertain the idle time so as to control it.
Methods of Time-booking
The following are the common methods of time-booking:
1. Job Ticket. Job tickets or job cards are very commonly used for recording the time spent on each
job. A card is prepared for each job and is allotted to the worker who takes up that particular job. The
worker enters in this card the time of starting as well as finishing the job. After finishing the job, the
worker submits his work along with his job ticket. He is then issued another job ticket for the next job
(See Fig. 3.3). Thus, only one job ticket is issued to a worker at a time. Such job tickets also serve the
purpose of authorizing the worker to carry out the job stated therein.
However, if there is a loss of time between finishing of one job and beginning of the next job, it
should be entered on the idle time card so that the record of his day's activities may be complete and
the time lost is not unduly charged against production. Such idle time card should also show the
reasons for idle time, like machine breakdown, waiting for instructions, lack of tools or materials, etc.
2. Combined Time and Job Card. This card combines the two in one—the clock card and job card, i.e.,
it records both the attendance time as well as time spent on different jobs. Idle time is automatically
revealed as the difference between time and work time.
3. Daily Time Sheet. Each worker is daily issued a time sheet in which the 1 on each job during the day
is recorded. This sheet must be completed on and handed over to the foreman for signature
4. Weekly Time Sheet. Weekly time sheets record almost the same information m the daily time
sheet. The main difference is that instead of recording the work done for a day only, record of work
carried out is entered on a weekly basis. Thus, week™ time sheets need less paperwork as compared
to daily time sheets. This method proves useful where the jobs are big and their number is small, e.g.,
building and| construction work, interior decoration, etc.

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The entries in the weekly time sheets may not be accurate as some workers ma make entries for
two/three days together at one sitting and in the process may forget time spent on certain jobs.
5. Piece Work Card. This card is allotted to a worker who is paid on piece basis. This card may be
made either for each individual job or for recording the work done on several job.
IDLE TIME
One of the objectives of time keeping is to ascertain the idle time. Idle time is the difference between
the time for which workers are paid and the time which they actually spend on production. It is the
time during which workers do not work, but wages are paid. It represents the time for which the
employer must pay but no production or equivalent operation is obtained.
Idle time cost is the wage paid for the time during which worker does I not work.
Causes of idle time
Idle time is caused by the following factors :
Unavoidable factors:
These causes are unavoidable. Such an idle time I is almost an implied condition of production.
Therefore, it is treated as I normal idle time. Cost of normal idle time is charged to the concerned I job
or treated as factory overhead. Strict measure of control and setting j up of standards for different
elements of normal idle time are essential I to keep it within reasonable limits. Examples of
unavoidable causes are I 1. moving from job to job,
2. time required to pick up jobs, e.g., time for setting up for tools, I machines etc.,
3. waiting for materials or for instructions ;
4. time taken for moving from the factory gate to the department where the worker is engaged and
after finishing the work going back to the gate;
5. tea breaks, minor accidents, personal needs etc;
6. seasonal nature of the industry.
Avoidable causes:
Idle time may also be caused by avoidable factors. For example, breakdown of machinery, failure of
power supply, delay in material supply under utilization of plant capacity, cyclical fluctuation, strike,
lockout, fire, flood etc. Idle time caused by these is called abnormal idle time. Abnormal idle time is
avoidable by effective planning and efficient execution of plans. Abnormal idle time is a loss and not a
cost. It is debited to costing profit and loss account. Comparison of cost of production of different
times becomes meaningful only where abnormal idle time cost is excluded from cost items.

Effective control of idle time is possible by efficient production planning and control system.
Production activities should be properly planned to achieve continuous productions so that workers
need not wait for work. Proper stores control and tool scheduling system ,clear instructions to the
workers on the nature of work, handing of machine, work sequence etc., proper maintenance and
inspection of machines and power plant etc. can help to reduce the idle time considerably. Idle time
reports will also enable the management to locate the persons or departments responsible for any
controllable lost time and to take necessary remedial actions.

Over time
It means the work beyond the normal working hours.
The causes of overtime are:
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1. to complete an urgent work or rush order;
2. to increase production to meet the increase in general demand ;
3. to complete the delayed work ;
4. to make up the loss of production hours due to factors beyond the control of management e.g.
fire, flood etc.
Overtime wage rate is higher than the normal time rate. Usually it is double the normal rate. Some of
the Industrial laws of India have fixed up normal rate. As per this Act any worker working for more
than 9 hours a day or 48 hours in a week is entitled to overtime payment. Overtime wage is fixed at
higher rate because the overtime comes in after the completion of the normal hours. The fatigue
caused by overtime work is more than that of normal hours. Workers have to put in more efforts,
sacrifice the time otherwise available for relaxation or pleasure routines.
Overtime payment is treated differently depending upon the cause of the overtime. If the overtime is
for the completion of an urgent work it is charged to that work order. If it is to meet incresing demand
or to complete the pending work it is treated as an item of overhead to that batch of production. If it
is by abnormal causes overtime wage is transferred to costing profit and loss account.
Overtime should be strictly discouraged and controlled, because the wage rate for overtime is higher
than that of normal hours, additional cost of lighting, power etc.,is to be incurred ; and productivity of
the labour is also low during these hours as the workers work beyond normal working hours. In many
cases overtime cannot be totally eliminated. Occasional overtime may be considered as a healthy sign
because it "shows that the existing workers are fully utilised. However, if overtime is needed
regularly, measures should be taken to increase the regular working hours either by recruiting more
workers or increasing the number of shifts or installing additional machinery. Thus overtime should be
allowed only at unavoidable cases. Even in such exceptional circumstances prior sanction from the
appropriate authorities must be obtained. Necessary preventive measures like better planning and
scheduling and closer supervision etc., must be taken to prevent overtime and discourage the
tendency among all the workers to slow down the work during normal hours and pull on the work for
overtime.

LABOUR TURNOVER
Labour turnover is the rate at which employees of a factory leave employment. It is the number of
workers left during the period in relation to the average number of workers employed during the
period. If refers to the change in labour force. This change may be due to the voluntary acts of the
workers or the compulsory actions of the management.
Measurement of labour turnover :
The important methods are as follows:
(a) Separation rate method:
(b) Replacement rate method :
(c) Flux rate method :

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 Causes of labour turnover :
Causes of labour turnover are commonly grouped as (i) avoidable causes and (ii) unavoidable causes.
Avoidable causes : These causes may be avoided by the management by taking suitable measures.
Some of the avoidable causes are:
1) low wage.
2) unsatisfactory working conditions.
3) bad relation between the worker and the employer,
4) inter-firm trade union rivalry,
5) lack of job satisfaction,
6) lack of proper training,
7) inconvenient hours of work,
8) lack of incentivies,
9), lack of common facilities like, medical, educational, housing,Conveyance etc.,
10) lack of job security,
11) unfair method of promotion,
12) Unsympathetic attitude of supervisory staff.
Unavoidable causes : They include the following :
1) death or retirement or disablement or illness,
2) marriage and pregnancy in the case of women workers,
3) change for better jobs,.
4) retrenchment or termination due to lack of sufficient work,
5) change for better places or working environments,
6) domestic responsibilities
The management must take measure to prevent labour turnover due to avoidable causes. These
causes are controllable.

Cost of labour turnover :

Labour turnover reduces-production and also increases cost. Labour turnover cost has two elements,
namely, preventive costs and replacement costs.
I. Preventive cost: The management has to incur certain costs to prevent workers from leaving the
organization. It includes the following costs:
1. High wages-the difference between the high wages paid in a firm and the wage rate prevailing in
the industry or the locality.
2. Cost of amenities in excess of the statutory minimum. Many firms introduce excellent facilities,
recreations and amenities for employees such as canteen, sports ground, libraries, creches, medical
facilities, housing, schooling of children and other forms of welfare and amenities in excess of
statutory minimum. The cost of such excess amenities is a part of preventive cost.
3. Adequate recruitment, training and absorption cost.
4. Excellent and expensive working conditions.
5. Retirement benefits like pension, gratuity and provident fund.
II. Replacement costs : The management has to spend for the recruitment j and training of new
workers. It has to bear the losses arising from inexperienced new employees. It includes the
following items:
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1) cost of selection and recruitment of new workers,
2) cost of training of new workers,
3) loss of output due to time taken in selection, recruiting and training new workers,
4) low rate of production by new workers,
5) loss of quality due to inexperience of new labour,
6) loss due to increased damage to tools and machines,
7) cost of scrap and defective work.
Measure to reduce the labour turnover :
Rapid labour turnover increases the cost of production, reduces the quality and quantity of output.
The management has to investigate the causes of labour turnover and frame managerial policies and
take actions to reduce the turnover rate. Some of the measure that will help to control the turnover
rate are as follows:
1. a proper recruitment and training policy,
2. a clear and definite promotion policy,
3. a good system of wage payment,
4. better working condittion,
5. provisions of labour facilities like education, housing etc,
6. provisions of labour welfare measures,
7. measure to increase the awareness of the management to take appropriate actions to reduce
the turnover cost.

Expected Questions of semester exam

24 marks: 12 marks 6 marks

Cost sheet Estimated cost sheet only Purchase cost computation(simple

problem)
Estimated cost sheet (you need to Purchase cost computation
prepare actual cost sheet also)
FIFO Fixation of Stock level EOQ
Preparation of Bin card
Weighted Average method
Weighted Average Taylor – Halsey- Rowan incentive Taylor's differential piece rate
wage plans plan
THEORY QUESTIONS
Limitations of financial accounting *Classification of cost –Any one 1. Objectives of cost accounting
basis 2.Define Costing, cost accounting,
Advantages and disadvantages of and cost accountancy
cost accounting to all the stake *Advantages of cost accounting 3.Explain Cost unit and cost center
holders to any two stake holders (say for with examples
eg: to workers, management etc) 4.Advantages of cost accounting
Difference between cost
to any one stake holders (say for
accounting and financial
*Treatment of items in cost sheet eg : to workers)
accounting

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 Classification of cost – (may be 12 items) 5.Write a note on EOQ
element,function,behaviour 6.Difference between stores
*Techniques and methods of ledger and Bin card (write a short
costing note)
7.ABC analysis
*Cost unit and cost center: Types 8.Overtime: causes (ANY SIX)
and examples 9.Idle time: causes (ANY SIX)
10.Normal and abnormal ide time
*Difference between stores 11. Write a note on Halsey,Rowan
ledger and Bin card incentive plans.

*Labour turnover: causes and Any other

costs

*Labour turnover: costs

*Idle time: causes

*Methods of time keeping and

time booking

*Perpetual inventory system and

its merits and demerits

*Centralized and decentralized

stores or purchasing : merits and
demerits

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