ACCOUNTING FOR

LABOR
 PAYROLL COSTS

 Direct labor represents payroll costs that are

allocated directly to the product and is debited
to work in process account.
 Indirect labor costs are payroll costs incurred
for a variety of jobs that are related to the
producti on process but are considered too
remote or too insignifi cant to be charged
directly to producti on.
 DEPARTMENTS IN LABOR COST
CONTROL

 Personnel department is responsible for

planning, recruitment and reti ring the labor
force.
 Engineering / work study / producti on
department is responsible for maintaining
control over the working conditi ons.
producti on plan, and job descripti on of each
worker.
 DEPARTMENTS IN LABOR COST
CONTROL

 Timekeeping department is responsible for the

accumulati on of the total hours worked by each
employee on a job, product or department.
 Timekeeping that involves recording the total
number of hours spent by each worker.
 Time booking involves an analysis of time
recorded for each worker and assigning them
to specific job, production or department.
 DEPARTMENTS IN LABOR COST
CONTROL

 Payroll department is responsible for

computi ng the gross pay, deducti ons and net
pay of the workers.
 Accounti ng department prepares the
disbursement of the payroll either by cash or
via the workers’ ATM cards.
 Cost accounti ng department collects, classifi es
and assigns all costs to jobs, producti on or
department.
 WAGE PLAN

Hourly-rate plan is a wage plan where a defi nite rate

per hour per employee is determined or computed.
Total wage is equal to the number of hours worked
multi plied by the rate per hour.
 
Daily rate = Monthly rate / 30 days
 
Rate per hour = Daily rate / 8 hours
 
Wage = Number of hours worked x Rate per hour
 WAGE PLAN

Advantages of hourly-rate plan

 Simple and economical to use.
 Direct approach since workers are paid based
on the actual number of hours worked by the
workers.
 Control materials wastages since the job is not
rushed.
 WAGE PLAN

Disadvantages of hourly-rate plan

 Producti on is not maximized since workers are
not subjected to certain ti me pressures.
 Does not increase the moti vati on of the
employees to achieve producti on effi ciency.
 Decreases the morale of the workers who are
more effi cient than others.
 WAGE PLAN

Piece-rate plan is a wage plan where the worker ’s

earnings is computed by multi plying the number
of output (in units or pieces) fi nished by the
predetermined rate per output.
 
Wage = Total output x Rate per output
 WAGE PLAN

Advantages of piece-rate plan

 Provides an incenti ve to workers to produce
more output.
 Regarded as fair wage since workers with high
effi ciency (more output) are rewarded more
than the workers with less output.
 WAGE PLAN

Disadvantages of piece-rate plan

 It increases clerical cost for setti ng up records
of output produced by each worker.
 Workers may feel exhausted because they need
to exert more efforts to produce more to earn
more.
 Quality may be sacrifi ced since the goal of each
worker is to produce more output.
 WAGE PLAN

Disadvantages of piece-rate plan

 It increases clerical cost for setti ng up records
of output produced by each worker.
 Workers may feel exhausted because they need
to exert more efforts to produce more to earn
more.
 Quality may be sacrifi ced since the goal of each
worker is to produce more output.
 WAGE PLAN

Modifi ed wage plan combines the features of the

hourly-rate plan and the piece-rate plan.
 If the workers did not achieve the quota, they
are paid using the minimum rate per day.
 If the established quota is achieved, the
workers shall receive an additi onal
compensati on equivalent to the excess of the
quota multi plied by the rate per piece.
 WAGE PLAN

Bonus or Incenti ve schemes encourages workers

to be more effi cient to increase output.
 Individual incenti ve plan where remunerati on is
based on the performance of individual
workers.
 Group incenti ve plan where remunerati on is
based on the producti vity of the group or
enti re workforce of the organizati on.
 FORMS USED IN LABOR CONTROL

 Time card shows an employee reports for work

and goes out and it is used in payroll
preparati on.
 Time ti cket or job ti cket shows the number of
hours a worker devoted to a certain job that
serves as a primary basis in making charges to
direct labor cost of the jobs worked on.
 Daily ti me report shows how a worker spends
the number of hours of ti me in for a day.
 FORMS USED IN LABOR CONTROL

 Payroll sheet shows the computati on of the all the

employees’ basic pay, overti me pay, gross pay,
deducti ons and net pay.
 Employees’ earnings record summarizes the periodic
and accumulated earnings of each employee.
 Alphabeti cal list of employees is a requirement by
the Bureau of Internal Revenue to include all the
compensati on paid by the company to existi ng and
resigned employees as well as the amount of tax
deducti ons made for the calendar year.
 GROSS PAY

The worker ’s gross pay consists of the basic pay

and the premium for ti me rendered as overti me.
When a worker’s rate is expressed on a monthly
   the worker’s rate per day can be computed
rate,
as follows: 
 PREMIUM PAY

Premium pay refers to the additi onal

compensati on for work performed within eight
hours for nonworking days as required by law.
 OVERTIME PREMIUM

Overti me pay refers to the additi onal

compensati on for work performed beyond eight
(8) hours a day.
 OVERTIME PREMIUM

 The premium is treated as a direct labor cost

(debited to work in process) when the overti me
is due to the rush nature of a job as required
by the client.
 The premium is treated as a factory overhead
when work is due to a greater volume of work,
slow producti on or inadequate plant capacity.
 LABOR TIME LOSSES

Waiti ng ti me or idle ti me is the cost of

nonproducti ve hours of direct labor ti me due to
lack of work, waiti ng for materials caused by
delays in scheduling, machine breakdown, and
machine set-up.  
 Normal idle ti me refers to the loss of ti me that
is inherent in the producti on process.
 Abnormal idle ti me are loss of ti me due
abnormal reasons.
 DEDUCTIONS

SSS / GSIS contributi ons are deducti ons that

provide meaningful protecti on to the members
and their families against conti ngencies resulti ng
in loss of income or fi nancial budged and to
contribute to the socio-economic development of
the country through a viable social insurance
program.
 DEDUCTIONS

 PHIC contributi ons are deducti on in the form of

health insurance including reimbursements of
medical and hospital bills.
 HDMF contributi ons are deducti ons for housing
programs and personal loans as well.
 Withholding taxes are deducti ons mandated by
the Bureau of Internal Revenue due to the
employees’ capacity to generate revenue above
the minimum wage.
 SPECIAL LABOR COST

Night Shift Differenti al (NSD) refers to the

additi onal compensati on of ten percent (10%) of
an employee’s regular wage for each hour of work
performed between 10 p.m. and 6 a.m. The shift
premium is directly debited to factory overhead
control
 SPECIAL LABOR COST

 Pension cost is an agreement between a

company and its employee group, by which the
company promises to provide income to
employees after they reti re.
 Bonus refers to an additi onal pay given to
employees due to some of reasons that the
company feels that should merit additi onal pay.
 Service incenti ve leave is earned by the
employee for daily service on the job over the
course of the year.