PROJECT ON COST PROJECT ON COST ACCOUNTINGACCOUNTING

TOPIC : LABOUR COSTTOPIC : LABOUR COST

INTRODUCTIONINTRODUCTIONLabour cost is a second major Labour cost is a second major

element of cost . element of cost . Proper control and accounting for Proper control and accounting for

labour cost is one of the most labour cost is one of the most important problems of the business important problems of the business

enterprise.enterprise.The human element in labour makes The human element in labour makes difficult the control of labour cost difficult the control of labour cost whereas materials , being inanimate whereas materials , being inanimate in nature, could be subjected to a in nature, could be subjected to a rigid control. Labour once lost rigid control. Labour once lost cannot be recoupled and is bound to cannot be recoupled and is bound to increase the cost of productionincrease the cost of production. .

TYPES OF LABOUR

DIRECT LABOUR INDIRECT LABOUR

DIRECT LABOURDIRECT LABOUR

Direct labour is that labour Direct labour is that labour which is directly engaged in thewhich is directly engaged in the

production of goods or services production of goods or services and which can be conveniently and which can be conveniently allocated to the job ,process or allocated to the job ,process or commodity unit. For example , commodity unit. For example , labour engaged in making the labour engaged in making the bricked in a kiln is direct labour bricked in a kiln is direct labour charges paid for making 1000 charges paid for making 1000 bricks can be conveniently bricks can be conveniently allocated to the cost of 1000 allocated to the cost of 1000 bricksbricks. .

INDIRECT LABOURINDIRECT LABOUR

It is that labour which is not It is that labour which is not directly engaged in thedirectly engaged in the

production of goods or production of goods or services but which indirectly services but which indirectly helps the direct labour helps the direct labour engaged in production. The engaged in production. The example are mechanics , example are mechanics , supervisors , chowkidars , supervisors , chowkidars , sweepers etc. sweepers etc.

LABOUR COSTLABOUR COST It represent the various items of It represent the various items of expenditure incurred on workers expenditure incurred on workers by the employer and would include by the employer and would include the followingthe followingA) MONETARY BENEFITS : A) MONETARY BENEFITS :

1.1. basic wagesbasic wages2.2. Dearness AllowanceDearness Allowance3.3. Employer’s Contribution to Employer’s Contribution to

Provident FundProvident Fund4.4. Profit bonusProfit bonus5.5. Old age PensionOld age Pension6.6. Production bonusProduction bonus7.7. Retirement gratuity Retirement gratuity

B)FRINGE BENEFITS OR LABOUR B)FRINGE BENEFITS OR LABOUR RELATED COSTS :RELATED COSTS :

1.1. Subsidised FoodSubsidised Food2.2. Subsidised HousingSubsidised Housing3.3. Subsidised EducationSubsidised Education4.4. Medical Facilities Medical Facilities 5.5. Holidays PayHolidays Pay6.6. Recreational Facilities Recreational Facilities

CONTROL OVER LABOUR COSTSCONTROL OVER LABOUR COSTS It is an important objective of management .It is an important objective of management . From functional point of view , control of From functional point of view , control of

labour costs is effected in a largelabour costs is effected in a large Industrial concern by the co ordinated efforts Industrial concern by the co ordinated efforts

of the following departments:of the following departments:1.1. Personnel department Personnel department 2.2. Engineering department Engineering department 3.3. Rate or time and motion study department Rate or time and motion study department 4.4. Time keeping departmentTime keeping department5.5. Pay roll departmentPay roll department6.6. Cost accounting department Cost accounting department

1)1) PERSONNEL DEPARTMENT PERSONNEL DEPARTMENT With the help of various departments With the help of various departments

supervisors and heads is responsible for supervisors and heads is responsible for the execution of policies regarding the the execution of policies regarding the recruitement , discharge classification of recruitement , discharge classification of employees and wages which have been employees and wages which have been laid down by the Board of Directors or a laid down by the Board of Directors or a committee of executives .committee of executives .

MAIN FUNCTIONS ARE:MAIN FUNCTIONS ARE:

1.1. To recruit workers To recruit workers

2.2. Train them andTrain them and

3.3. Place them to the jobs they are best Place them to the jobs they are best fittedfitted

The submission of various The submission of various reports to the top reports to the top management such as Weekly management such as Weekly reports, Labour turnover, reports, Labour turnover, Labour Labour productivity ,accidents , productivity ,accidents , disciplinary action ,idle disciplinary action ,idle time ,overtime ,casual workers time ,overtime ,casual workers etc is also considered to be etc is also considered to be the most important function of the most important function of personnel departmentpersonnel department..

Labour turnoverLabour turnover Labour turnover denotes the percentage Labour turnover denotes the percentage

change in the labour force of an change in the labour force of an organisation .High percentage denotes organisation .High percentage denotes that labour is not stable and there are that labour is not stable and there are frequent changes . The definitions of frequent changes . The definitions of labour turnover are given below :labour turnover are given below :Labour turnover according to separation method :Labour turnover according to separation method :

= = Number of Employees left during a period Number of Employees left during a period x 100 x 100 Average number of employees during a periodAverage number of employees during a period

2.2. Labour turnover according to flux methodLabour turnover according to flux method

= = Number of additions + separations during a periodNumber of additions + separations during a period x 100x 100 Average number of employees during a periodAverage number of employees during a period3.3. Labour turnover Labour turnover == No. of additions + separations No. of additions + separations // 2 2 x x

100100 Average number of employeesAverage number of employees4.4. Labour turnover according to replacement methodLabour turnover according to replacement method == No. of workers replaced during a period No. of workers replaced during a period x 100 x 100 Average number of employees during a periodAverage number of employees during a period

2) ENGINEERING 2) ENGINEERING DEPARTMENTDEPARTMENT This department is required to maintain This department is required to maintain

control over working conditions and control over working conditions and production method for each job and production method for each job and department by performing the following department by performing the following functions :functions :

1.1. Preparations of plans and specifications for Preparations of plans and specifications for each job schedule for production.each job schedule for production.

2.2. Inspection of jobs at success stages of Inspection of jobs at success stages of production to make sure that jobs are being production to make sure that jobs are being done according to plans.done according to plans.

3.3. Inspection of jobs after they are completed Inspection of jobs after they are completed to insure they are satisfactorily completed .to insure they are satisfactorily completed .

4.4. Maintaining safety conditionsMaintaining safety conditions5.5. Maintaining good working conditions Maintaining good working conditions 6.6. Conducting research and experimental work Conducting research and experimental work

before under taking new jobsbefore under taking new jobs

3) Rate or Time and 3) Rate or Time and motions studied departmentmotions studied department This department works in close This department works in close

harmony with the personnel , harmony with the personnel , engineering and cost departments.engineering and cost departments.

This department performs the This department performs the following functions : following functions :

1.1. Making of time and motions studies Making of time and motions studies of labour and plant operations.of labour and plant operations.

2.2. Making job analysisMaking job analysis

3.3. Setting piece ratesSetting piece rates. .

4) TIME KEEPING 4) TIME KEEPING DEPARTMENTDEPARTMENT

This department is concerned with the This department is concerned with the recording of time of each worker engaged recording of time of each worker engaged in the factory .The recording of time is for in the factory .The recording of time is for two purposes i.e for Time keeping and two purposes i.e for Time keeping and Time Booking .Time keeping is concerned Time Booking .Time keeping is concerned with the recording of time of workers fro with the recording of time of workers fro the purposes of attendence and wage the purposes of attendence and wage calculations whereas time booking is the calculations whereas time booking is the reporting of each worker’s time for each reporting of each worker’s time for each department, operation and job for the department, operation and job for the purposes of cost analyses and purposes of cost analyses and apportionment of labour costs between apportionment of labour costs between various jobs and departmentsvarious jobs and departments . .

5) Pay roll department5) Pay roll department

The important activities of the pay roll The important activities of the pay roll department in controlling and department in controlling and accounting for labour costs are as accounting for labour costs are as follows:follows:

1.1. To maintain a record of the job To maintain a record of the job classification, department ,and wage classification, department ,and wage rate for each worker.rate for each worker.

2.2. To verify and to summarise the time of To verify and to summarise the time of each worker as shown in time cards .each worker as shown in time cards .

3.3. To calculate the wages of each worker.To calculate the wages of each worker.4.4. To prepare the pay roll or wages sheet To prepare the pay roll or wages sheet

for each department .for each department .5.5. To maintain a permanent payroll record To maintain a permanent payroll record

for each employee to distribute wages for each employee to distribute wages and salariesand salaries..

6) COST ACCOUNTING 6) COST ACCOUNTING DEPARTMENTDEPARTMENT

The cost accounting department The cost accounting department is responsible for the is responsible for the accumulation and classification accumulation and classification of all labour costs . This of all labour costs . This department uses time cards , department uses time cards , job cards and ay rolls for the job cards and ay rolls for the calculation of the labour cost of calculation of the labour cost of various jobs, work orders , various jobs, work orders , processes etc.processes etc.

WAGES ANALYSIS SHEET OR WAGES ANALYSIS SHEET OR WAGES ABSTRACTWAGES ABSTRACT

The cost accounting department The cost accounting department preares the wages abstract in preares the wages abstract in order to determine the direct order to determine the direct labour costs , indirect labour labour costs , indirect labour costs, department labour costs costs, department labour costs and difference between the and difference between the budgeted labour costs and the budgeted labour costs and the actual labour costs and to inform actual labour costs and to inform the management of the the management of the effectiveness of its labour policieseffectiveness of its labour policies..