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LABOUR COSTS

Presented By:

7.Darpan Batra
21.Rikita Gujral
23.Sonika Gupta
38.Devang Mehta
39.Anand Menon
41.Upasana Nagpal
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′lā·bər ′köst

• Wages paid to workers during an


accounting period on daily, weekly,
monthly, or job basis, plus payroll and
related taxes and benefits (if any).

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The Manager’s Thought
LABOUR COST IS:

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Other Benefits

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System of wages

• Should satisfy employees & employer


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Time Wage or Day Rate system
• Wages to worker are paid on time basis irrespective of
quantum of production
• Wage measured on basis of unit of time, i.e., hourly,
daily, weekly or monthly
• Formula: Hrs worked X Rate per Hr

SUITABILITY :Volume of production is not within the


control of labor. E.g. Oil Refinery


• The nature of work is such that there is no basis for
incentive plan. E.g. Night watchman

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Piece Rate or Piece Work
• Remuneration of work is paid on the basis of
production and not time taken by to perform the
work
• Simple and most commonly used incentive schemes
Units Produced X Rate per Unit
• Formula:

SUITABILITY :

• If the productivity is closely related to skill & efforts


• The unit cost can be easily determined
• If it is possible to fix a fair and acceptable piece rate
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Avg Labour cost/manday worked

(state wise)2003-04

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Labour costs ( industry wise)
2003-2004

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Advantage India

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CALCULATION OF WAGES RATES FOR COSTING
PURPOSES
Q: Calculate labour cost per man- day of 8 hours from the

following particulars:

(i) Basic Salary Rs. 4 per day
(ii) Dearness Allowance 25 paise per every point over
100 cost of living index for
working class. Current cost
of living index is 500 points
(iii) Leave Salary 10% of (i) and (ii)
(iv) Employer’s 8% of (i), (ii) and (iii)
contribution to
(v) Employer’s
provident fund 2.5 % of (i),(ii) and (iii)
contribution to E.S.I
(vi) Expenditure on Rs. 20 per head per month
amenities to labour
(vii) Number of working 25 days of 8 hours each
days in a month 13
Solution:

Calculation Rs.
(i) Basic Salary = 4.00 4.00
(ii) Dearness Allowance = 400 × 0.25= 100 4.00
(cost of living index- 500 points => 100/25= 4
for a month of 25 days)
(iii) Leave Salary = (10/100) × (4+4) 0.80
( 10% of (i) and (ii)) = 0.1 × 8= 0.80
(iv) Employer’s contribution to = (8/100) × 0.70
provident fund (4+4+0.80)
( 8% of (i), (ii) and (iii)) = 0.08 × 8.80 =
(v) Employer’s contribution to E.S.I = (2.5/100) ×
0.704 0.22
( 8% of (i), (ii) and (iii)) (4+4+0.80)
(vi) Expenditure on amenities to = 0.025
20/25 ×
= 8.80
0.80 0.80
labour
(Total
Rs.20 per head per month) 10.5214
Why Control labour costs?
• Inefficiency of labor
• Wasting material due to improper supervision
• Idle time – normal & abnormal causes.
• Unusual overtime work
• Inclusion of dummy names in payrolls, etc
Controlling accomplished by:
OTHER COSTS
• Idle time
• Overtime
• Bonus & premiums
• Incentive wage plans
• Group bonus schemes
• Co –partnership schemes


Treatment of Idle Time Cost
• Treatment of normal idle time cost
 (i) Treated as direct wages
 (ii) Treat as an item of factory expenses and recover as
indirect charges
• Treatment of abnormal idle time cost
1 Does not form part of cost of production
2 Directly transferred to Costing Profit & Loss
Account without disturbing the normal costs
I.
ELIMINATE ABNORMAL CAUSES &
MINIMIZE NORMAL ONES
Overtime & its treatment

• Time spend over & above the normal working
hours on the job
• In India, if worker works more than 9hrs a day or
48 hrs a week.
I. Direct cost- customer pays due to urgency
II.P/L A/c- to makeup any shortfall in production
due to some fault of management or due to
abnormal causes like floods
III.General overhead- when handling seasonal
pressures


Q: Calculate the normal and overtime wages payable to a
workman from the following data:

Days Hours
worked
Monday 8 hours Normal 8 hours perday ,Re 0.50
Tuesday 10 hours working per hour. Up to 9 hours in
hours a day at single rate and
Normal rate: over 9 hrs a day at double
Wednesday 9 hours rate or up
Thursday 11 hours Overtime 48 hours in a week at
Friday 9 hours Rate: single rate and over 48
hours at double rate ,
whichever is more
Saturday 4 hours beneficial to workman
51 hours
20
Day Normal Total Normal Overtime
Working Rate
Single Double
Hours
Rate Rate

Monday 8 8 8

Tuesday 8 10 8 1 1

Wednesday 8 9 8 1

Thursday 8 11 8 1 2

Friday 8 9 8 1

Saturday 8 4 4

48 51 44 4 3
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Normal wages on time = 44 hours x Rs.0.50 = Rs.22.00
rate
Overtime wages: Single = 4 hours x Rs. 0.50 =Rs. 2.00
Rate
Double Rate = 3hours x Re 1.00 = Rs. 3.00

Total wages = Rs. 27.00


 If payment is made on weekly basis, then:



= 48 hours x Rs. 0.50 = Rs. 24.00

Normal Wage for 48

hours
Overtime payable at = 3 hours x Re. 1.00 =Rs. 3.00

 double rate ( 51 hours-


 48 hours)
Total Rs. 27.00

Hence, in both the cases total wages payable to the worker = Rs. 27.00

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Types of incentive wage plans
TYPES OF INCENTIVE
WAGE PLANS

Halsey Premium Plan

• The worker is paid a % of the time saved over the standard rate per
piece.
• Standard time is fixed for each job/operation
• If the labour completes at standard time or more he is given the
standard price.
• If time saved- wages given for actual hours saved as a bonus.

Time taken* rate + %(standard time-time taken)*


rate
Cont…
Rowan System

The bonus hours are calculated as the proportion of the

time taken which the time saved bears to the


standard time allowed
Time taken* rate + standard time – time taken* time taken*
rate
Standard time
Question ???
Factory A Factory B

Rowan Plan Halsey Plan


Time taken Time taken
=36hrs =48hrs
Time allowed (standard time): 60 hrs.
Rate of wages: Rs10 per hour

Required: Total earnings according to both the systems


The formula of calculating wages by Halsey premium
method and Rowan’s method are as follows:

Time taken* rate + %(standard time-time taken)* rate


Time taken* rate + standard time – time taken* time taken*
rate
Standard time

Wage at location A: 36 *10= 360 Rs


Wage at location B: 48 * 10=480 Rs

a ti
c
Lo A
on Bonus : 60-36 * 36 *10= 144 Rs
60
c a ti Bonus : 50% time saved * rate per
Lo B hr
on =50% (60-48) * 10
=60 Rs

‘A’ ‘B’
(Rowan’s method) (Halsey’s method)
Rs. Rs.
Wages: 360 480
Bonus: 144 60
Total: 504 540
Merrick Differential Piece Rate
System

Efficiency Price rate

applicable
• Has 3 categories for
payment Up to 83% Normal rate
• Daily wages are not
guaranteed.
Up to 100% 10% above
Normal rate

Above 100% 20% above


Normal rate
Methods of measuring workforce performance

 Labour turnover

 Labour productivity

 Absenteeism

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Labour turnover
• Labour turnover (staff turnover) can be
defined as the rate of change in a firm’s
labour force.
• look at labour turnover over a period of 1 year.

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Turnover and costing

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Calculation Methods
1.Separation method:
• no.of separations in a period/avg total no.of
workers in a period * 100
2.Flux or separation cum replacement method:

• No. of separation+ no.of replacement/ avg total


no.of workers in a period *100
3.Replacement method:

• No.of workers replaced during a period/avg total


no.of workers* 100
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QUESTION :The personnel dept has supplied the


following info:
June 1st 2008 – 1900

June 30th 2008 – 2100

During the month, 60 persons were discharged and 20

left the company. During the month 200 workers


were engaged out of which only 40 were appointed
against the vacancy caused by the number of
workers separated and the remaining on account of
an expansion scheme of the company.
Calculate labour turnover rate & equivalent rate under

diff. schemes. 35
Avg no. of workers = 1900 + 2100 / 2 = 2000

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Labour Productivity

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Labour productivity

Output per worker


 Cost per unit

=Total value of Output  = Total Labour Cost


Total Number of workers  Number of units produced
• •
• Look at labour productivity
over a period of time e.g.
1 year •


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Labour Absenteeism

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Absenteeism
• Defined as the number of staff who miss
work as a proportion of the total number
of staff

 Number of staff absent per time period x 100
 Total number of staff days worked per time period
 Look at absenteeism over a period of time e.g. 1 month

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Preparation of Pay Rolls or
Wage Sheets
• Responsibility of The wages or payrolls department



 Wages are calculated from any of the previous methods.
• The wage sheets are prepared department-wise as they
help in budgeting

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PEPE Jeans Co. Ltd.
Wages Abstract
Departmen Production Job Card Hours or Rate per Labor Cost
Period Ending:.............
t or Shop Order no. No. Pieces hour/ piece

PEPE Jeans Co. Ltd.


Wages
DepartmAnalysis
Total Direct Factory Adm. S&D Deduction
Period Ending:…….
ent Wages Wages Overhea Overhea Overhea s
d d d

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THANK YOU

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