UNIT 4

Labour Costs
MOTIVATION
2
 Learning Outcomes
3

Compute an hourly recovering rate to

provide for holiday pay
Define idle-time
Compute gross wages, deductions and net
wages and indicate them on a payroll
Analyse the labour cost into direct and
indirect labour cost
Show the accounting entries in the general
ledger regarding labour costs
 Idle Time
4

Time lost in the manufacturing process

Unintentional, e.g internal - machine break down,
or external - employee strike
Even if it is direct labour time, allocate to
manufacturing overhead
Spread cost over the total production for the
period
 Labour Recovery Rate (LRR)
5

Calculated to determine how much the business is

spending on each employee per hour

LRR = Total gross amount paid

Total hours worked
 Holiday Pay
6

Holiday pay received by direct labourers is charged to

jobs by means of a higher hourly tariff
Example
 Employees are paid N$20 per hour for 40 hours per
week and they have two weeks leave per year.
 Other benefits like employer contribution to medical
aid and pension fund are N$24 200 per year.
 Public holidays for the year are 10 and a normal idle
time of 10% of available working hours is allowed. A
holiday bonus of N$35 000 will be paid.
 Calculate the hourly tariff for 10 employees
Feedback
7
Feedback
8
Treatment of Labour Costs
9
 Wage Sheet
10

Calculation of gross wages

Calculation of net wages – gross wages
minus voluntary and statutory deductions
Wage Sheet
11
Wage Sheet Analysis
12
Accounting Entries
13

N$3 755
Accounting Entries
14
Accounting Entries
15
Accounting Entries
16
Accounting Entries
17
Accounting Entries
18
Accounting Entries
19
 Holiday Pay Accounting Entries
20

The amount provided for as holiday pay is handled

like employer contributions
Dr Payroll control account xx
Cr Leave pay provision xx
Amount paid as holiday pay
 In wage sheet included as part of gross wage
 In analysis of wage sheet in seperate column –
holiday pay
Dr Leave pay provision xx
Cr Payroll control account xx
 Summary
21

Labour cost consists of direct and indirect

labour
Employees remunerated by means of different
systems
Idle time handled as part of overhead
Overtime premium handled as part of overhead
Labour cost in wage sheet
Labour cost analised in direct and indirect
labour
 Revision Question
22

Jac Mart’s basic rate is N$80 per hour and overtime

rates are time and half for evenings and double for
weekends. The following details have been recorded
for three jobs.
Job X321 Job X786 Job X114
Normal time 480 220 150
Evening time 102 60 80
Weekend 10 30 16
 Required
23

Calculate the labour cost chargeable to each of the

jobs in the following circumstances:

 Where overtime is worked occasionally to meet

production requirements (6 marks)

Where overtime is worked at the customer’s

request to bring forward delivery time. (12 marks)