PROJECT ON COST ACCOUNTING TOPIC LABOUR COST INTRODUCTION

PROJECT ON COST ACCOUNTING TOPIC : LABOUR COST

INTRODUCTION Labour cost is a second major element of cost. Proper control and accounting for labour cost is one of the most important problems of the business enterprise. The human element in labour makes difficult the control of labour cost whereas materials , being inanimate in nature, could be subjected to a rigid control. Labour once lost cannot be recoupled and is bound to increase the cost of production.

TYPES OF LABOUR DIRECT LABOUR INDIRECT LABOUR

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

INDIRECT LABOUR It is that labour which is not directly engaged in the production of goods or services but which indirectly helps the direct labour engaged in production. The example are mechanics , supervisors , chowkidars , sweepers etc.

LABOUR COST 1. 2. 3. 4. 5. 6. 7. It represent the various items of expenditure incurred on workers by the employer and would include the following A) MONETARY BENEFITS : basic wages Dearness Allowance Employer’s Contribution to Provident Fund Profit bonus Old age Pension Production bonus Retirement gratuity

1. 2. 3. 4. 5. 6. B)FRINGE BENEFITS OR LABOUR RELATED COSTS : Subsidised Food Subsidised Housing Subsidised Education Medical Facilities Holidays Pay Recreational Facilities

CONTROL OVER LABOUR COSTS 1. 2. 3. 4. 5. 6. It is an important objective of management. From functional point of view , control of labour costs is effected in a large Industrial concern by the co ordinated efforts of the following departments: Personnel department Engineering department Rate or time and motion study department Time keeping department Pay roll department Cost accounting department

1) PERSONNEL DEPARTMENT With the help of various departments supervisors and heads is responsible for the execution of policies regarding the recruitement , discharge classification of employees and wages which have been laid down by the Board of Directors or a committee of executives. MAIN FUNCTIONS ARE: 1. To recruit workers 2. Train them and 3. Place them to the jobs they are best fitted

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

Labour turnover denotes the percentage change in the labour force of an organisation. High percentage denotes that labour is not stable and there are frequent changes. The definitions of labour turnover are given below : = 2. = 3. 4. = Labour turnover according to separation method : Number of Employees left during a period x 100 Average number of employees during a period Labour turnover according to flux method Number of additions + separations during a period x 100 Average number of employees during a period Labour turnover = No. of additions + separations / 2 x 100 Average number of employees Labour turnover according to replacement method No. of workers replaced during a period x 100 Average number of employees during a period

2) 1. 2. 3. 4. ENGINEERING DEPARTMENT This department is required to maintain control over working conditions and production method for each job and department by performing the following functions : Preparations of plans and specifications for each job schedule for production. Inspection of jobs at success stages of production to make sure that jobs are being done according to plans. Inspection of jobs after they are completed to insure they are satisfactorily completed. Maintaining safety conditions

3) Rate or Time and motions studied department This department works in close harmony with the personnel , engineering and cost departments. This department performs the following functions : 1. Making of time and motions studies of labour and plant operations. 2. Making job analysis 3. Setting piece rates.

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

5) Pay roll department The important activities of the pay roll department in controlling and accounting for labour costs are as follows: 1. To maintain a record of the job classification, department , and wage rate for each worker. 2. To verify and to summarise the time of each worker as shown in time cards. 3. To calculate the wages of each worker. 4. To prepare the pay roll or wages sheet for each department. 5. To maintain a permanent payroll record for each employee to distribute wages and salaries.

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

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