Accounting for Labour BY TAHA POPATIA
Measuring labour activity
Production: Quantity of output produced. Productivity: Measure of the efficiency with which output is
produced.
Production level can be raised by working overtime, hiring extra staff etc. It can be lowered by cancelling
overtime and firing workers etc.
Measures of labour activity include the following ratios:
Efficiency Ratio Capacity Ratio Production Volume Ratio
Expected hours to make Actual hours worked/ Hours Expected hours to make output/
output/ Actual hours worked budgeted Hours budgeted
Efficiency ratio x Capacity ratio = Production volume ratio.
Remuneration methods
Time work: Wages = Hours worked x Rate of pay per hour.
Overtime premium: Extra rate per hour paid for hours above the basic daily requirement.
Piecework schemes: Wages = Units produced x Rate of pay per unit.
At times a guaranteed minimum wage is offered to pieceworkers so that they do not suffer any loss when
production is low through no fault of their own.
Under a differential piecework scheme, employees are paid higher amounts for more units they
produced. There are per piece rates decided in slabs.
Bonus/Incentive schemes: to compensate workers who work efficiently.
High day-rate system: Workers paid high per hour rate as compared to industry in the expectation that
they will work more efficiently.
Individual bonus schemes: Each person’s bonus is calculated separately.
Group bonus schemes: Relates to the output performance of the entire group of workers, department or
even a factory.
Recording Labour cost
Labour attendance time is recorded on an attendance record or clock card.
Job time is recorded on daily timesheets, weekly timesheets or job cards depending on the
circumstances.
Labour cost of pieceworkers is recorded on a piecework ticket.
Departments involved in controlling and measuring labour costs:
Human resource Maintains records for all employees. The department is also responsible in
department engagement of new workers, transfer and discharge of employees.
Production planning The department is responsible for scheduling work and chasing the work
department when it gets late.
Timekeeping Maintains records of how much time labour spends in a factory and also on a
department particular job.
Wages department Computation and payment of wages to workers.
Cost accounting Cost classification into different types, direct and indirect cost. Preparation of
department cost data reports.
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Accounting for Labour BY TAHA POPATIA
Idle time ratio
Idle time ratio = Idle hours / Total hours x 100%.
Shows proportion of available hours which were lost as a result of idle time.
Idle time occurs when employees cannot get on with their work, through no fault of their own.
Labour turnover
Rate at which employees leave a company.
There are two types of costs associated with labour turnover:
Preventative costs Costs incurred in order to Example: Cost of medical
prevent employees leaving services including check-ups,
Cost of welfare services,
including sports facilities.
Replacement costs Costs incurred to facilitate the Example: Cost of advertisement
replacement process when old of new jobs, Cost to conduct
workers leave the company and interview process, Cost of
new workers are hired training
Wages control account
Bank Work in progress
Deductions Production overhead
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