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Week 5 – Chapter 4 LABOUR COSTING
FNSACC507A Provide Management Accounting Information
In this lesson you will learn…
1. About the documents used to cost and control factory labour.
2. How to prepare accounting records from these documents (e.g. time tickets + relevant journal entries).
The Manufacturing Process
Is about converting raw materials into finished goods with the use of
direct labour and factory overhead.
The Manufacturing Process
WORK IN PROGRESS
MATERIALS
LABOUR
OVERHEADS
FINISHED GOODS
DIRECT versus INDIRECT (materials + labour)
DIRECT INDIRECT
Can be easily and conveniently traced to a particular cost object (in this case, a particular job order).
Cannot be easily and conveniently traced to a particular cost object (in this case, a particular job order).
Classified as factory overhead and allocated to production via a predetermined overhead rate.
e.g. wood used to make wooden furniture
e.g. nails & glue used to assemble wooden furniture; factory supervisor’s salary
Accounting for
LABOUR
Overview 1. Accounting for labour 2. Payroll procedures 3. Enterprise agreements 4. Labour-related costs 5. Labour costing procedures
1. Accounting for LABOUR � Labour is the physical and/or mental effort expended in the manufacture of a product.
� Labour cost is the price paid for the use of human resources.
� Our focus will be on accounting for labour costs incurred to manufacture a product.
2. Payroll procedures
ACTIVITY ISSUE (usage)
1. Timekeeping To determine total no. hours spent at work by each employee to enable calculation of money earned for the period. Source document: Time card
2. Allocation Source document: Time ticket Time tickets summarise time spent at work by each employee on: * direct labour à charged to production * Indirect labour à charged to factory overhead For each employee, sum of time tickets for pay period should equal total on time card.
3. Payment Includes calculation of: • Net wages payable to each employee • PAYG withholding tax • Other statutory and employee approved deductions
Accounting for labour involves three (3) main activities:"
3. Enterprise Agreements � Factory employees (excluding factory
management) usually covered by award or
enterprise agreement which sets out: � Employment conditions e.g. hours of work per day, AL,
SL, LSL entitlements etc. � Basic rates of pay � Penalty rates to be paid for overtime etc.
� Award conditions and rates of pay are underpinned by 10 National Employments Standards (NES) (Fair Work Act à effective 1 Jan 2010)
4. Labour-related costs
TOTAL cost to firm =
GROSS WAGES +
LABOUR-RELATED COSTS
GROSS WAGES � Includes: Wages earned for period + Allowances e.g. overtime, sick or holiday pay (incl. annual leave loading at 17.5% of 4 weeks wages if applicable) + Incentives e.g. bonuses or commission
LABOUR-RELATED COSTS � Additional costs incurred by employer over
and above employee earnings � e.g.
� Payroll tax � Workers’ Compensation Insurance � Superannuation
NET PAY (amount paid to employee)
= GROSS WAGES
- DEDUCTIONS
DEDUCTIONS � Includes: Taxes (PAYG Withholding Tax) + Other statutory and employee approved
deductions
� Deductions are withheld in a liability account until paid to the relevant 3rd (external) party e.g. PAYG Withholding Tax is paid to ATO (via firm’s BAS).
Worked Examples
Accounting for LABOUR (WEEK 5) 3a. Fast Ferraris Ltd 3b. Pendle Hill Ltd
Worked Examples NOTE TO STUDENTS:
Before moving on to the next slide, please open and work through the following document now:
WEEK 5_FNSACC507A_Management
Accounting_WORKED EXAMPLES_Labour Costing
This week’s homework � Read chapter 4 à Labour (p.194 to p.210) � Complete homework questions (chapter 4)
(ref. STUDENT ONLINE STUDY GUIDE)
You are now ready to start the next part of this lesson on:
CHAPTER 5
Factory Overhead