gan2r2or? Faay Feeds Roady | Ready Ready iuwee ros) Dy >rincipal ‘otar rial Cost 5 - lata] Rom EMPLOYEE COST (Labour Cost) Objectives “After studying this chapter, you should be able to: + Understand the meaning of direct labour and its importance + Discuss the meaning and causes of labour turnover and the methods of its measurement Know the various methods of time keeping and time booking Explain idle time and overtime and their effect on cost Understand time rate and piece rate systems of labour remuneration Understand the various incentive plans of labour remuneration and their effect on cost and profit Labour or manpower represents human resources used in production. After material cost, labour cost is the second major element of cost. Despite large scale use of machinery and advanced technologies in manufacturing, the role of labour in production cannot be under- estimated, So significant isthe role of labour that productivity of all other resources depends. on the productivity of human resources. In other words, higher efficiency of labour helps in lowering the cost per unit of production. There is, therefore, a special need for proper organization for accounting and control of labour cost. According to Cost Accounting Standard-7 (CAS-7) issued by ICAI, employee cost is ‘the aggregate of all kinds of consideration paid, payable and provision made for future payments, for the Services rendered by employees of an enterprise (including temporary, part time and contract employees). Consideration includes wages, salaries, contractual payments and benefits, as applicable, or any payment made on behalf of the employee. This is also known as labour cost.’ Labour cost is of two kinds: (Direct labour cost (i) Indirect labour cost220022017 Read | Ready 7] Ready Ready >encipal s2o!27 eas] [ 32 Employee Cost (Labour Cost) Direct and Indirect Labour Costs \— Direct labour costs ‘the cost of| ‘employees which can be attributed to a cost object in an economically feasible way.” Direct labour is expended in altering the construction, composition or condition of the product. It is directly engaged in production work and can be conveniently identified or attributed wholly to a particular job, process or cost unit Wages of a machine operator is a direct labour cost. Ina factory of readymade garments, wages paid to a tailor are direct wages, Similarly, in a textile mill, wages paid toa weaver are direct wages. Indirect labour cost, on the other hand, is the wages paid to those workers who are not directly engaged in converting raw materials into finished products. Such costs cannot be conveniently identified with a particular cost object. Supervisors, inspectors, clerks, instructors, peons, watchmen and cleaners are examples of indirect workers. Organization for Accounting and Control of Labour Cost There are mainly five departments in an organization which deal with labour. These are as follows: Personnel department This is a service department and is mainly concerned with the proper selection and training of workers and placing them on jobs for which they are best suited. Engineering department This department prepares and plans specifications of jobs makes job analysis, conducts time and motion studies, makes provision for safe working conditions and supervises production activities. Time-keeping department This department is concerned with recording of workers's time. The recording of time put in by workers is required not only for attendance and wage calculation purpose but also for the purpose of cost analysis and apportionment of labour cost over various jobs. Payroll department This department maintains a record of job classification and wage rate of each employee and performs the function of computation of wages payable to them by preparing payroll or wage sheet. It is also responsible for disbursement of wages. Cost accounting department This department accumulates and classifies all cost data of which labour is one important element. It analyses the payroll and prepares routine and special labour cost reports for submission to management so that proper control may be exercised on labour cost. The functions and scopes of these various departments have been discussed in detail, later in this chapter. PERSONNEL DEPARTMENT This department is concerned with recruitment, discharge and transfer, etc, of labour. On engaging a new worker, the personnel office will prepare an Employee's Record Card, This card will show full personal details of the employee, particulars of previous employment, wage rate payable and his medical category. This is shown in Fig. 3.1. The following departments are notified about the engagement of a new employee: (@ The department where the worker has to report for duty, a notification is made that the worker is expected to report on a certain date. 1 L221022017 | Ready Rea] >encipal saotar abour Cosy qq. object in | truction, | “ork and ost unit. ments, ‘weaver vho are cannot clerks, se are with Yate king ass ‘age our age em Emplovee Cost (Labour Cost) 33 _ EMPLOYEE'S RECORD CARD Name.. No. ‘Addeoss—Present Permanent Employment Record Department Status Engagement Particulars Date employed on | Date Marital status Height. Weight General physique Any other Grade Previous Employment Record Wage Rate Record Date Rate Particulars Reference... Notes Reverse side of the card Time-keeping and Merit Education and Training Dales oiee, ikcet Educational qualifications time | time | Merit |others| Year | Sickness &] Osher ec Accident Mire) | neg): ~] Schools/colleges attended 1 From ...... To 2 From .n.. To Date left. Training at | Reasons for leaving Other remarks . Fig, 3.1: Employee's Record Card (©) The payroll department is informed about the new employee's name, the name of the former employee whom he replaces, clock number, rate of pay, date of commencement, ete. (0) The time office, for recording the employee's attendance. LABOUR TURNOVER In all business organizations, it is a common feature that some workers leave the employment and new workers join in place of those leaving. This change in work force is. known as labour turnover. Labour turnover is thus defined as ‘the rate of change in the composition of the labour force in an organization.’ Labour turnover varies greatly between lifferent trades and industries. For example, where part-time and seasonal labour is. employed. the rate will be highe:22022017 TReaay Ready | Reaay Ready ius) res) >encpal sotar a 34 Employee Cost (Labour Cost) ‘Measurement of Labour Turnover ‘To facilitate comparisons between different periods and different undertakings, labour tumover may be expressed in a rate ‘There are three alternative methods by which this rate is computed. Once a particular method is used, it should be consistently followed for comparative analysis. The methods 1. Separation method This method takes into account only those workers who have left during a particular period. Its formula is: No. of workers whohaveleft during a period Labour Turnover Rate = ~- °° Workers whohaveleft during a period 1994 ot Rate = "Average no. of workers during the period * 10 No. of workers, No. of workers at the in the beginning * _ end of the period z "Multiplication by 100 in the given formulae indicates that the rates are in percentage 2.Replacement method This method takes into account only those new workers who have joined in place of those who have left. Its formula is: “ No, of workers replaced during the period Labour Turnover Rate = —°-O WORSE replaced during the period’ 109 z __Average no, of workers during the period Ifnew workers are engaged for expansion programme or any other such purpose, they are not considered for this computation. 3. Flux method This shows the total change in the composition of labour force due to separations and replacement of workers. Its formula is: Rais, No.of workers wholeft + No. of workers replaced “Average no. of workers Labour Turnover due to New Recruitment It has been stated above that workers joining the organization on account of opening of new departments or due to any type of expansion programme should be excluded while calculating the labour turnover rate. But these new workers recruited are certainly responsible for a change in the composition of labour force. Therefore, some cost accountants measure turnover rate for these new workers (excluding replacements) by the following method: 3 (No. of ew workers joining in the period Average Number = Labour Turnover x 100 } Labour Turnover Rate = ——©Xcluding replacement) ig, “Average no, of workers Total number of workers joining, including replacements, is called accession. The labour turnover rate in such a case may be calculated in respect of workers joining (accession) the organization during the period which includes all workers joining due to replacements and also due to expansion. It is calculated as follows: ‘No. of accessions during a period ib turnover Rate = lcci pe 2 “Average no. of workers 100 ’2210212017 “Ready — pre} Reaay Rea Ready “| Reedy >incpal saotar © Cost) abour cular hods have employee Cost (Labour Cost) 33, When labour tumover rate is computed by taking into account the number of accessions, the flux method rate will be calculated as follows: No. of Separations + No. of accessions of = Tectseparations + No.of accessions. 199 “Average no. of workers Equivalant Annual Labour Tumover Rate Labour tumover rate, as explained above, may be computed for a month, a quarter or for any period other than a year. It may be converted into an equivalant annual labour turnover rate by using the following formula: ‘Equivalent annual’ Turnover rate forthe period 5-29 ‘labour tumover tate “No. of days inthe period “2 YS Iustration 3.1 From the following data given by the Personnel Department, calculate the labour turnover rate by applying: (@) Separation method (©) Replacement method (© Flux method No. of workers on the payroll: At the beginning of the month 900 At the end of the month 1,100 During the month, 10 workers left, 40 persons were discharged and 150 workers were recruited. Of these, 25 workers are recruited in the vacancies of those leaving, while the rest were engaged for an expansion scheme. (ICWA Inter) Solution: Average no. of workers = aeeide = 1,000 No.of workersleft = 10440 = 50 50 1. Separation Rate = —20_ = a 7,000 5% 2. Replacement Rate = > x 100 = 25% 7,000 50+ 25 3. Flux Rate = x10 = 73 wae 5% “Note: Additional workers engaged on expansion plan have not been considered.2an2i2or7 Ready “pres | Ready | Rear Ready >encipal notar —— 36 Employee Cost (Labour Cost) Alternative methods produce the following rates: Labour turnover rate for new workers = x 100 (excluding replacements) 1 1s Labour turnover rate for accessions) = +193 199-1504 1,000 50+25+ {Labour turnover rate (Fux Method) = “22257125 109. 29m Causes of Labour Turnover Labour turnover reports should be prepared regularly to be placed before the as to why the workers left. The causes ridable causes; and (ii) Unavoidable causes, management, giving a breakdown of the cau ‘may be classified in two broad categories: (i) Avoi Avoidable causes These include: Low wages and allowances Unhappy relations with co-workers and supervisors Unsatisfactory working conditions + Trade union rivalry Lack of medical facilities, transport facilities, etc. Inadequate job security and retirement benefits Unavoidable causes These include: Death or retirement Illness or accident Domestic problems Discharge on disciplinary grounds Seasonal nature of business Change in plant location . Personal dislike for job or environment Marriage—particularly in the case of women workers ‘Change of job for betterment Effect of Labour Turnover {certain amount of labour tumover will always take place. To a limited extent this may be welcome, particularly at the lower management level as it creates vacancies for internal Promotions which acts as motivation for young and ambitious workers. Moreover, new Workers bring new ideas and methods of doing work from other organizations Labour tumover is expensive and generally it should be minimized because it leads to increased cost of production for reasons stated below. Cost of Labour Turnover The cost of labour turnover may be broadly classified into two broad categories: ( Preventive costs; and (ii) Replacement costs. Preventive costs These costs are those which are incurred to keep the work force satisfied and to prevent or discourage them from leaving the organization, These include:227022017 “| Reaay >ineipal reotar "Cony 0%, the ses, L Employee Cost (Labour Cost) 37 Cost of personnel management—only that portion of this cost which can be attributed to the efforts of the personnel department in maintaining good relations between management and workers 2. Cost of welfare activities and services, eg., canteen meals, co-operative stores, educational and transport facilities and housing schemes 43, Cost of medical services 's. Pensions schemes—to provide security and retirement benefits 5, Extra bonus and other perquisites (in excess of those given by other similar concerns) to discourage their defecting to other undertakings Replacement costs These costs include all such losses and wastages arising because of the inexperienced new labour force replacing the existing one as well as the cost of fecruitment and training of the new workers. These include: Cost of recruitment and selection of new employees Cost of training of new workers Loss of output due to some time gap in recruiting new workers Loss due to inefficiency of new workers Cost of accidents due to lack of experience of new workers Cost of extra scrap and defective work of new workers Cost of tools and machine breakdown due to faulty handling by new workers m4. Reduction and Control of Labour Turnover Labour turnover may be reduced by taking action on the basis of avoidable causes given earlier. The following steps may be taken in this regard: 1. Devising a suitable and satisfactory wage policy Providing working conditions conducive to health and efficiency Impartial and sympathetic attitude of personnel management Introducing financial end non-financial incentive plans Providing promotional opportunities Encouraging labour participation in management Introducing an effective grievance procedure Strengthening the welfare measures Treatment of Cost of Labour Turnover The preventive cost of labour tumover should be apportioned to various departments on the basis of number of workers in each department. Regarding the replacement costs, if the replacement is due to the fault of a particular department, it should be directly charged to that department. If labour turnover is due to the defective management policy, the replacement cost should be apportioned to various departments on the basis of number of workers in each department. PNAVEEK ENGINEERING DEPARTMENT This department helps in maintaining control over working conditions and production ‘methods for each job, process or department. It performs functions like: 1. Preparation of plans and specifications for each job 2. Conducting time and motion studies38 Employee Cost (Labour Coy aan2017 3. Making job analysis and setting piece rates 4. Providing safe and efficient working conditions 5. Supervising production activities in various production departments WORK STUDY i Work study may be defined as a technique of management which involves analytical study ae of jobs/operations with the object of determining the exact operations to be performe] Ready and measuring the work content of jobs. The object of work study is overall improveme by saving time, reducing loss of materials, developing new methods of work, etc. so as, decrease cost. Work study consists of two techniques: (2) Methods study; and (2) Work | measurement. “Trea Methods Study Methods study aims at determining the correct and more effective ways of doing jobs sp that methods of production may be improved and effective use of existing resources bbe made. This involves study of operations, tools and equipment, movements, ete. Methods study helps in the following ways: “ | /Benae (@) It improves methods in general and establishes correct methods for jobs and | Processes. | (®) kestablishes data from which process layouts and standard time can be produced, wherever required. | Ready Work Measurement Work measurement is a technique of establishing normal or standard times after standardization of methods and establishment of a measure for the work contents of jobs oF operations. In this process of work measurement, the technique of motion study is used which is followed by time study and both of these techniques taken together are known as ‘Time and Motion study. Time and Motion Study | Motion study is the study of the movements (motions) of workers and machines in | Performing the operation. Its objective is to identify and eliminate unnecessary and Ready wasteful motions made by workers and the machines operated by them. This is done by 4 careful observation of factors like using both hands without undue straining, linking ‘motions to each other in the most economical sequence, using tools and equipments which would both speed up the work and make it easier to perform, substituting ineffective movements by effective ones. — Time study follows motion study. Time study is the art of observing and recording ne the time required to do each detailed element ofan industrial operation. Its main objective | is to determine the standard time required to carry ota job most efficiently. Time and motion studies help in determining the best method of doing a job and the standard time allowed for it, After determining the standard time, the management cin easily determine the number of workers needed to do it and also the labour cost of —_ the job. >encinal notar220212017 ~ | Ready "| Ready itwee | stes(a) ¥ nepal totar ur Cog Istudy ormed emenp asta ds s0 Day ods and eaee Employee Cost (Labour Cost) 39 JOB ANALYSIS Job analysis isthe process of determining the tasks which comprise the job and the skills, [nowledge, abilities and responsibilities required of the worker for its successful Wormance. In simple words, it is an analysis of a job to determine the qualities needed By workers to perform the work satisfactorily. Job analysis helps in fixing wage rates for different jobs and also helps in the right recruitment, selection and placement of workers, Job Evaluation Jb evaluation is the rating of jobs for the purpose of determining the relative worth of teach job. It is a systematic method of appraising the worth of each job in relation to other jobs. The idea behind job evaluation is that jobs which are similar in terms of duties and Tequirements must carry the same amount of salaries. For example, the job of an electrician and a machine operator may appear to be quite different but, if they are of the same relative worth, they require similar levels of intelligence, skill, effort, etc, in which case, both these jobs should be paid at the same rate ‘The work characteristics to be considered in job evaluation are education, training, experience, knowledge, risk of accident, monotony, noise, physical and mental effort required, etc. Uses The uses of job evaluation are: 1. It indicates the wage value of each job 2. It facilitates merit rating, selection, training, fixation of incentive pay, improvement in working conditions, etc. 3. It simplifies wage administration by bringing about uniformity in wage rates 4. It helps in ascertaining whether the workers are put on the job for which they are best suited 5. The faimess inherent in the system helps in improving industrial relations Merit Rating Job evaluation (discussed above) determines the relative worth of jobs. As against this, ‘merit rating determines the relative worth of each worker. Merit rating which is also known as employee rating or performance rating may be defined as a systematic evaluation of an employee's performance om the job, in terms of the requirements of the job. Tt rates or grades workers on their jobs on the basis of objective and comparative review of their individual performances. While attempting to rate workers in a workshop, the following factors may ‘be considered: (a) Skill and experience; (b) Educational background; (c) Intelligence; (@ Responsibility; (e) Physical efforts; (f) Supervisory abilities; (g) Leadership qualities. Uses of merit rating 1. Ithelps in determining the fair rates of wages of different workers on the basis of thelr rating 2. It can be used as a fair and scientific basis for transfer, promotion or discharge of workers 3. Itmay reveal special abilities of certain workers which may otherwise go unnoticed It provides incentive to workers to improve their qualities required by the jobs 5. Objective and systematic merit rating helps in improving employer-employee relations, encourages competition and reduces labour turnoveran2r2or? Ready Ready | Ready Ready Ready tue & reste) >encinal solar 3.0 Employee Cost (Labour Coy) TIME-KEEPING DEPARTMENT The time-keeping department is an important part of a firm’s system of accounting ang control of labour cost. The main function of this department isto accurately record each worker's time of arrival and departure in the factory and also the time spent on differem jobs or processes. Thus it embraces two functions: (@) Time keeping, ie, recording arvival and departure time of workers for attendance Purpose and for calculation of wages; and (©) Time booking, i., recording time spent by workers on different jobs or processes for determining labour cost of jobs /processes. The purpose of time recording is to provide basic data for: (), Preparation of payroll (ii) Attendance records, to meet statutory requirements (ii) Computing labour cost of a job or process (2) Computing overhead cost of jobs, if based on wages or labour hours (©) Statistical analysis of labour records for determining productivity and control of labour cost Methods of Time Keeping ‘There are mainly three methods for recording attendance of workers. 1. Attendance register In this method, attendance of each worker is recorded in the register maintained for this purpose. This register provides sufficient number of columns for attendance of each worker. Entries in the arrival and departure columns may be made CLOCK CARD Name. Department... No. Week ending... Day | Forenoon ‘Afternoon Overtime Total hours in| out | in | Ou From] | Normal | Overime Mon: Tue. Wed. Thu, Fri Sat. Total Wage rate = Total wages &... Time-keeper Less: Deductions @ . . Net pay atti (Signature) lock/Time Card221022017 Ready Resay Roady “Reedy | [Resa | notar i of BaF ployer cost (Labour Cost 3 py te foreman or te worker himeel If worker are iterate, they should be required siz tn Mipet entries to avoid any dispute later on. Separate attendance register may be séeiained in each department ifthe number of workers is large, otherwise one register Mil serve the Purpose ‘This method is quite simple and cheap. But it can be used only when the number of workers is small. In such cases, generally there is no need for a separate time keeper as the work is done by the foreman 3 Token or disc method Each worker is allotted an identification number is suitably ined or engraved on a round metal token (or disc) with a hole init All such tokens are [ing in a serial order on a board atthe factory gate. As the worker arrives, he removes rae cen from the board and puts it in a box kept nearby or hangs it on another board ne is specially kept for this purpose. After the fixed time, the box or the second board Wfemoved. Those coming late have to hand over their tokens personally at the time office so that exact time of their arrival can be noted. “The time office records attendance on the basis of tokens in the box. The absentees are indicated by the missing tokens, Similar procedure is followed at the departure time in the evening This method is not fool-proof as a worker may try to get his absentee friends marked present by dropping their tokens in the box. 3, Time-recording clocks Unlike the first two methods, this is a mechanical method of recording attendance and proves quite useful when the number of workers is fairly large. Each worker is allotted a Clock Card which bears his identification number, name, department, etc. These cards are kept in a rack in a serial order. There are usually two racks—an ‘In’ rack and an ‘Out’ rack, On arrival, the worker will pick up his card from the ‘Out’ rack, put it in the slot of the clock, press a button and the exact time is printed on the card. After this the card is put in the ‘In’ rack. An inspection of the ‘Out’ racks will reveal absentees. ‘A similar procedure is followed if workers leave the factory at mid-day for lunch or inthe evening at close time. Clocks are adjusted so that late arrivals, early or late leavings, overtime, etc, are automatically printed in red. The time keeper must take care to ensure that no worker places friend’s card in the clock in addition to his own, so as to avoid proxy. ‘At the end of each week, the cards are sent to the pay office and a fresh set of cards for the ensuing week is placed in the racks. ‘Advantages ‘The main advantages of installing time-recording clocks are: 1. The method is quite economical for large concerns as the initial heavy capital expenditure in installing clocks is recovered by savings in operating expenses, i, economy in wages of time recording staff 2. Chances of disputes are reduced as clocks provide more authentic records than hand-written documents 3. Work in connection with the preparation of wage sheets becomes easier because clock cards may be utilized for calculation of wages ‘The main shortcoming of this method is that heavy initial capital investment is required which small concerns may find difficult to afford 4. Biometric Time Clock Biometric time-recording clock is an electronic device to record attendance of employees. It is a new generation technique which is replacing the22n22o17 ~ Ready | | Reagy | iuwes—] ares) ¥ Peincpal notar Methods of az Employee Cost (Labour Coy {ypical time clock used to track employee attendance. Instead of employees punching ating ‘card of logging their attendance by hand, they simply place their finger on the Fingerprig Reading Sensor or place their hand into the Hand Reader and the rest of the work is done by the machine, This device completely eliminates the time and effort required to monite the time clock activity at punch in/out fimes, consequently leading to substantial cst saving and improved productivity. ‘The main features and advantages of biometric system are that it can: 1. Eliminate time card Automatic payroll processing Eliminate buddy-punching Eliminate early punch hours Eliminate unauthorized overtime Eliminate time spent on payroll calculations Accurately report employee time/attendance to payroll and HR Noaween Time Booking In addition to recording worker's time of arrival and departure, itis necessary to record the details of work done by the workers and the time spent on each job or process, Recording of ‘worker's time spent on different jobs is known as time booking, The objectives of time booking are: (0 toensure that the time for which a worker is paid is properly utilized; (to ascertain the labour cost of work done; (iii) to provide a basis for apportionment of overheads; (i) to ascertain the idle time so as to control it. 1e-booking, The following are the common methods of time booking: 1. Job Ticket Job tickets or job cards are very commonly used for recording the time spent on each job. A card is prepared for each job and is allotted to the worker who takes up that particular job. The worker enters in this card the time of starting as well as finishing the job. After finishing the job, the worker submits his work along with his job ticket. He is then issued another job ticket for the next job (See Fig. 3.3). Thus, only one job ticket is issued to a worker at a time. Such job tickets also serve the purpose of authorizing the worker to carry out the job stated therein. However, if there is a loss of time between finishing of one job and beginning of the next job, it should be entered on the idle time card so that the record of his day's activities may be complete and the time lost is not unduly charged against production. Such idle lime card should also show the reasons for idle time, like machine breakdown, waiting for instructions or lack of tools or materials. 2. Combined Time and Job Card This card combines the two in one—the clock card and job card, ie, it records both the attendance time as well as time spent on different jobs. Idle time is automatically revealed as the difference between attendance time and work time. (Format of Time and Job Card is given in Fig. 3.4.) 3. Daily Time Sheet Each worker is daily issued a time sheet in which the time spent on each job during the day is recorded. This sheet must be completed on the same day and handed over to the foreman for signature (See Fig, 3.5). |2210212017 Ready Ready “| Reaay | >inepal rotar So Cag ‘cd the ng of owas TEEETR ployee Cost (Labour Cost) 313 ——————EEeEeEE————— JOB TICKET/CARD Worker's No... Job No. Worker's Name. i Dated Department mn ‘Machine No. z Time $taNOd weno Operation No. Time finished Time allowed : Hours taken ‘Job Description Hours Rete ‘Amount z z | Workman Foreman Cost clerk. Fig. 3.3: Job Ticket/Card TIME AND JOB CARD Worker's No. a Department Worker's Name.. Week ending Clock time] Job time | Ordinary | Over- | Job | idle Day | Job No. time | time | time | time From| To|From| To | (Hrs) | (Hrs) _| (Hrs) | (Hrs) Mon. Tue. Wes. Thu. Fri Sat Total Rate of pay © Total wages € . Cost clerk Time keeper on Foreman. Fig. 34s Time and Job Card2021201? Ready Feaay “| Ready Ready | Ready Ready >rincipal ‘otar 314 Employ Cos (Labour fg : DAILY TIME SHEET rs Date e Department. é Work | Time Total hours - Order | Details of work done| Rate Ic ‘No. From | To | Ordi-] Over-| @ | rary | time < j i | ‘ | Workman. Foreman. Cost clerk. Fig. 3.5: Daily Time Sheet ‘The main drawback of this method is that it needs a lot of paperwork as considerable amount of time will be taken in preparing time sheets and in consolidating these records for purposes of ascertaining labour cost. However, it is suitable where the workers have to frequently change their jobs in a day, e.g,, maintenance workers. 4. Weekly Time Sheet Weckly time sheets record almost the same information as the daily time sheet. The main difference is that instead of recording the work done fora day only, record of work carried out is entered on a weekly basis. Thus, weekly time sheels WEEKLY TIME SHEET Worker's No. = Week ending Worker's Name Department... Job] Details of Days of the weok Tota! No. | Work done| vous! Ord [Over i Mon.| Tue.| Wed.| Thu. | Fri. | Sat.| nary |time| ¢ | @ | & Workman.n nn Foreman Cost clerk. Fig. 3.6: Weekly Time Sheet me22022017 Reay Ready Reaay TReaay | Ready “| Reaay | inca rotar * Cost are br ployee Cost (Labour Cost? 3.5 Jess paperwork as compared to daily time sheets. This method proves useful where nestins are bigand their number is small, eg, building and construction work and interior decoration. “The entries in the weekly time sheets may not be accurate as some workers may make entries for two/three days together at one sitting and inthe process may forget time spent entertain jobs. A specimen of Weekly Time Sheet is given in Fig. 36. 5 Piece Work Card This card is allotted to a worker who is paid on piece basis. This card may be made either for each individual job or for recording the work done on several if group system of piece work is in vogue, the card may be allotted to each group of venkers. A specimen form of Piece Work Card is given in Fig. 3.7. PIECE WORK CARD Worker's. NOx. Week ending Worker's Name... Department Job | Description | Hours | Units | Units | Units | inspec-| Piece | Amount No.| of Job | taken | pro- | rejec-| passed| ted by | rate | 7 i duced | _ ted: e wages. Fig, 3.7: Piece Work Card “Though piece rate workers are paid on the basis of number of units produced and not ‘on the basis of time taken, recording their time spent on different jobs is essential, particularly where overheads are absorbed on the basis of labour hours. Moreover, it ensures that piece workers do not cause any interruption in production by their late arrival or early departure. PAYROLL DEPARTMENT The payroll department is responsible for the important task of computation and disbursement of wages payable to workers. It records hours worked and wages earned, ‘makes payroll deductions, determines the net amount due, maintains a permanent earnings record for each employee and provides the treasurer's office with necessary records to ‘make payments, Functions ‘The important functions of the payroll department in the accounting and control of labour costs may be listed as follows: 1. To maintain a record of job classification, department and wage rate for each employee.To compute the payroll deductions. » To maintain permanent payroll record of each employee 6. To make wage payments. | ‘Wages Sheet L ope main function of payroll department is to prepare payroll sheet, also known as wages sheet, Wages sheet is a statement which lists the workers! wages showing gross wages cared by them for a particular period and actual wages payable to them after making Recessary deductions. Time or clock cards are the basis for the preparation of wages sheets Departmental wages sheets are summarized ina master wages sheet which forms the base | for the preparation of the payroll voucher entry in the general ledger in cost control accounts. A pro forma of wages sheet is given in Fig. 38. Ready Resa | Pay Slip Some companies have a practice of preparisig a pay slip of each worker, which may be funded over to the worker in advance of the actual payment of wages. Pay slip shows basic wages and details of various allowances like house rent allowance, dearnese allowance and other payments like bonus, overtime pay, etc,, and various deductions | account of P-F. contribution, income tax, recovery of loans, and any other deduction. The t+ __| pet amount payable is shown after making all these adjustments. Specimen of pay slip ig Ready | given in Fig. 3.9, Frauds in the Payment of Wages | One of the problems associated with payment of wages is the possibility of frauds Perpetrated by those concemed with calculations and disbursement of wages, Type of frauds The following types of frauds are commonly seen: 1. Inclusion in the payroll of fictitious or dummy workers, ie., non-existent workers ‘whose names are fraudulently entered in the payroll. . Inclusion of wrong hours of duty /overtime. Showing absent workers as present. Ignoring to mark late arrival or early departure. Use of wrong rate of pay in the payroll Inclusion of bonus not due. Intentionally failing to record deductions. Manipulation in the payment of wages. ieee) Prevention of frauds The following steps and internal checks are recommended to rosie) | prevent frauds in wage payment | 1. Each employee should be issued an identity card containing such particulars as | name, identification number, department and photograph. This card should be 3.16 Employee Cost (Labour Coy) Bb 2 To verify and to summarize the time of each worker as shown on the daly time 2200212017 . cards. To prepare the payroll and compute the wages eamed by each employee. Rear Ready ¥ required to be produced at the time of wage payment. When the worker leaves the employment, he/she should surrender his identity card, | >encpal \ | saotar"Ur Coxy 37 oye Cost (Labour Cost) Er y 2102/2017 yaays (tosfiog 39°C BEE A33HS S3OVML33HS TIOMAVE 2 [2 f2fa la lefefe 2>|2 [2/2 2 seoue pied saben | -mou own | 20) | pemon owen | on Jso6em| eros |siouio | xex1 |1s3 | 4c |ss09 | somo | va | snuog | 40n0 |nBeu| sunor | rex] svewom | s40wOM swrewees | 10N SURO a] { Surpue MUOWPIeeM, --ywousedog be ws 55 on he is Is Ready Ready Ready Roady Ready ¥ >incipa totar2222017 Ready Ready Ready Ready Ready >rinipat nolar 3.18 Employee Cost (Labour Coy —— PAY SLIP Name of Wotk@ rnc: D : JepartMeNt enn Worker's. No. z Wage period z Basic wages Overtime pay Deamess allowance House rent allowance ‘ Bonus — Other allowances ee Gross wages Less: PF, contribution E.S1. contribution Income tax Other deductions Net amount payable Dated... Signature Fig. 3.9: Pay Slip 2. To detect dummy workers, names in the wages sheet should be compared with ob cards and time-keeper’s records. Special care should be taken to see that names of ex-employees are not included in the wages sheet. 3. The wages sheet should be properly signed by all those persons responsible forts Preparation. 4. Wages sheet of the previous months should be compared with that of current month and any increase in the number of workers should be inquired into. 5. When wages are paid on piece basis, the quantities produced should be certified by a competent inspector and countersigned by the foreman. 6. Overtime should be properly authorized and no overtime payment should be made without proper sanction, 7. The work of preparation of wages sheet should be distributed among a number of persons in such a way that the work of each person is automatically checked by another. All calculations in the payroll should be checked by an independent responsible person 8. Payment of wages should be made by some responsible person. The foremen should also be present to identify the workers. Signatures and thumb impressions of some of the workers should be compared with the previous months, 9. The exact amount of total wages payable should be drawn from the bank and exact cash payable to each worker should be put in pay-packets. Before handing ovet the pay-packet, its contents should be recounted by another individual.2210202017 “Reser | >incioa rotar ur Cog 5 F of Employer Cost (Labour Cost) sw | 40, Payment of wages should be made on fixed dates only. The unclaimed wages should be disbursed on stipulated dates under strict supervision. Casual Workers ‘Te casual or badh’ workers are temporary workers who are not on the regular payrol of The etory. They are appointed ona daily bass to meet additional workload orto stand in for absentee workers. “The appointment of casual workers is a very common source of fraud in the payment of wages Its, therefore, very important to have a proper control over their appointments, heir taetof work and payment oftheir wages. If proper control isnot exercised, some dummy or pogus names may be shown as casual workers and the wages so paid fraudulenty poet ppropriated. The following steps should be taken for accounting and contro of casual workers: (a) Fall records regarding appointment and discharge of such workers should be maintained. (The appointment of such workers should be sanctioned by a competent executive (o) Payment of wages should be mace by a person other than the one who appointed them. (@) When they ate appointed as indirect workers, time sheets should be issued to them. (e) When casual workers are employed at site for some contract work, surprise visits should be paid to check their number. Out-workers ‘These are the workers who work outside the factory premises on behalf of the undertaking Out-workers are classified into two categories as given below: (@) Workers who work from their own homes They are supplied with raw materials and they work either with their own tools or tools supplied by the concern. Such workers fare usually paid on piece basis. Control over such workers should be exercised in the following manner: () All materials supplied should be accounted for and there should be no undue wear and tear of tools supplied by the concern. (ii) The work should be delivered within the stipulated time. (iii) The quality of finished work should be carefully inspected. (0) Workers sent to site Some workers may be sent to site or customer's premises for performing work. For example, some companies supplying engineering products provide after sales service and workers are sent to customer's place when so required. Such out workers may while away their time when they go out for work. Job cards should be issued to them so that labour cost of work done can be ascertained. Surprise visits by supervisors at the place of work will have a salutary effect on discipline and help in controlling such costs. IDLE TIME Idle time represents time lost by workers who are paid on time basis. When workers are paid on time basis, some difference between the time for which they are paid and that ‘which they actually spend on production is bound to arise. This difference is known as3.20 Employee Cost (Labour Cost) E idle time. Idle time is defined as ‘the difference between the time for which employees are Paid and the employees’ time booked agains the cost object’ It represents the tines oe which they are paid but no production is obtained. For example, time lost between factory gate and the department, time when production is inter-u ipted by machine maintenance, allowable time-offs such as rest intervals, tea breaks, ete amar2or7 Causes Tale time may occur owing to productive, administrative or economic causes Facgeductive causes The productive causes are those which result in loss of production. These include (@) Idle time due to machine breakdown f F (6) Power failures | Feay (@) Waiting for work (© Waiting for instructions Idle time due to productive causes is usually controllable b Supervision and proper maintenance of plant and machinery. 2. Administrative causes Idle tim Y proper planning, strict we is sometimes caused by administrative decisions, rs when there is surplus capacity of plant and machinery, which tre management decides not to utilize, there may be some idle time due to ad arises out of abnormal situations and is generally not controllable, 3 Economic causes Idle time may also be caused by fallin the demand of products, say due to severe competition, seasonal nature of certain industries lik 5 £ T i & E € = ¢ a : a : Z Fe F g s zg E z | Reaay Normal idle time This is that wastage of labour time whi has to be borne by the employer. For example: (@) The time which ela of the next. (©) The time taken in is engaged, =“ | (©) Personal needs, tea breaks, rest intervals, etc 5 | ich cannot be avoided and ipses between the completion of one job and the commencement soing from the factory gate to the department in which the worker (@) Time spent in setting machines, etc. The cost of normal idle time may be treated in one of the followi () As overhead cost it may be charged to factory overhea: is allotted a separate standing order number. This ing two ways ids, For this purpose, idle time helps in its effective control ~ | totar2210212017 Ready Roady nepal rotar are rich ate of npn Cost (Labour Cost) 321 “As direct wages The wage rate may be inflated to make allowance for normal loss encipal solar 322 Employee Cost (Labour Coy The following steps may be taken to control idle time: (@) Production should be properly planned so that imbalances in production are avoideg or reduced, (©) Repairs and maintenance of plant and machinery should be regularly undertaken to avoid breakdown, (6) Raw materials, tools and instructions should reach the worker well in time so tha no time is wasted in waiting for them, (@) Supervision should be tightened. OVERTIME Overtime occurs when a worker works beyond normal working hours. The norma Working hours are laid down in the Factories Act. Accordingly, any worker working for ‘more than 9 hours per day or more than 48 hours per week is entitled to overtime payment ‘The Factories Act also provides for payment of overtime wages at double the normal rates of wages, Overtime is defined ‘a the time spent beyond normal working hours, which i usualy pid at higher rate than the normal time rate’ The extra amount beyond normal wages and salaries is called overtime premium. The oyertime work is, therefore, a costly affair and should be avoided as far as possible due to the following disadvantages attached to it Disadvantages of Overtime (@) Teleads to excessive labour cost. (© During overtime hours, labour productivity is decreased because of diminishing labour efficiency. (©) It puts an extra strain on plant and machinery. (@) Ithas a bad effect on the health of workers. (©) Certain overheads, like lighting cost, increase because of work in the evening. (9 Workers may develop a tendency to work in overtime and take overtime wages a3 a part of their normal earnings. () Hf overtime work is not properly distributed among the workers, it may lead to discontent. Treatment of Overtime Payment for overtime consists of two elements: (2) Normal amount of wages, salaries, etc. (8) Additional amount expended on overtime work, ie, overtime premium. This is over and above the normal amount of wages and salaries. The normal amount of wages is charged to the cost unit or production order on which the worker is working. The difficulty lies in the treatment of overtime premium, This overtime premium is charged differently, under different circumstances, as follows 1. When overtime is job specific When overtime is spent on a specific job at the request of a customer due to urgency of work and the customer agrees to the entire charge of overtime premium, it should be charged to the job or work order concerned. 2. When overtime is due to general pressure When a business receives more orders than it can cope with in the normal working hours and there is general pressure of work, it may be treated by one of the following two methods:2022017 Ready ‘ture & sree(a) ¥ >ncipal solar 7 Coy voided Haken 0 that mal 8 for nent, rates wally and and ployee Cost (Labour Cost) 3.23 | (p ‘Treat overtime premium as direct labour cos by inflating the wage rate and charging to different jobs at the inflated /average rate (i Alternatively, it ay be treated as indirect wages and included in overheads 45, When overtime is due to abnormal reasons Overtime arising due to abnormal factors, ke accident, power failure, fire and machine breakdown, or due to factors like aeectve planning or faulty management, it should not be included inthe cost of products Sad it should be charged to costing Profit and Loss Account Control of Overtime In order to keep the overtime premium to the minimum, proper control must be exercised gn it The following steps should be taken for this purpose: (@) All overtime work should be duly authorized by the Works Manager (@) Overtime cost should be separately recorded for each department for proper planning in future. (0) Total overtime premium should be regularly reported to the Works Manager. (@) When overtime becomes a permanent feature, say, due to shortage of plant capacity, steps may be taken to install additional plant and machinery or introduce an additional shift to cope with additional work. ‘TREATMENT OF SPECIAL ITEMS Leave with Pay ‘According to the Factories Act, workers are entitled to annual leave with full pay, for a specified number of days in a year. This may include casual leave, medical leave, special leave, ete. The cost of paid leave cannot be charged to any work order or cost unit since no work is done during this period. It is, therefore, treated as indirect labour cost and charged to overheads. ‘Alternatively, leave wages may be treated as direct labour cost in which case the wage rate is inflated. This is done by estimating in advance the amount of leave ‘wages and spreading it over the actual number of working hours to give an inflated hourly rate. Holiday with Pay Workers are also entitled to certain holidays like Diwali, Id, Republic Day, Independence Day, etc. Like leave wages, payment of wages for these holidays is also unproductive in the sense that no production work is done on these days. Payment for such holidays should, therefore, be treated in the same way as leave pay. Profit Sharing Bonus Under the Payment of Bonus Act, a minimum amount of bonus is payable to workers, even if no profits are earned during a period. The bonus should, therefore, be charged to cost of production. The amount of such bonus in respect of direct labour should be included in the direct labour cost and that in respect of indirect labour should be charged to overheads of the department concerned.22/0017 Ready | Reaay —] ~Resay Ready inee ros) ¥ >encipal solar 3.24 Employe Cost Labour Cog JP According to Cost Accounting Standard-7 (CAS-7) issued by ICWA of India, 1 whether payable as a statutory minimum or on a sharing of surplus, shall be treateq io Part of employee cost. Exgratia, payable inline of or in addition to bonus, shal aoe | treated as part of employee cost’ COST ACCOUNTING DEPARTMENT “ The cost accounting department collects and analyses all costs relating to labour. For of Purpose it makes use of clock cards job cards, daily or weekly ime sheets, payroll shee. J ret ete bul The cost accounting department is also responsible for presenting clear and wey. |< designed reports on labour. Each report should furnish information in the most practical du ‘manner. Such reports relate to normal and abnormal ide time, overtime, department labour costs, variances from budgeted labour costs, etc. Special reports may be prepared to infoms Re the management ofthe effectiveness of labour policies and steps that need to be taken fr | \ proper control of labour costs. be Wages Analysis Sheet or Wages Abstract, The analysis of labour cost is made on a document known as Wages Analysis Sheet or ‘Wages Abstract. The purpose of this is similar to that of Material Analysis Sheet. A form of Wages Analysis Sheet is given below. Total labour cost is usually analysed into direct and indirect. In the wages analysis sheet, amount appearing against job number constitutes direct labour cost of jobs. The indirect labour cost has been given separately. The total of the direct and indirect labour cost is reconciled with the total wages as per the wages sheet of the period. es WAGES ANALYSIS SHEET (Wages Abstract) No Week ending.. Worker's No. Weages of Job No. Total | indirect woges | weags 51] 82] 53] 54] 65] 56| 57] 58] 59] 60] 61] 62 | for jobs tl et el zl ee] eel | el ele Total Prepared by. Checked by. Fig, 3.11: Wages Analysis Sheet2210212017 Reay Ready Ready TReaay | Ready “| Reaay | >rinepa raotar - i er Cost) 3.25 ae (OUR REMUNERATION 1m ‘remuneration’ is used to cover the total monetary earnings of employees. It ‘The ter sheludes wages according to time or piece basis and other financial incentives. ‘The efficiency in production can be increased by using improved equipment, by more effective utilization of plant and by adoption of better methods of production, but the most {mportant contribution must come from labour. Accordingly, the methods of remuneration of labour should be so designed as to encourage workers to do their best. Methods of femuneration which allow high wages to be paid have the effect of increasing labour cost put may also result in increased production and productivity, thereby reducing the labour cost per unit. On the other hand, low wages generally result in high labour cost per unit due to lower productivity, high rate of labour turnover, etc. Employee Cost (La ites of a Satisfactory System of Labour Remuneration eee ‘on a particular system of labour remuneration, the following factors should ‘be taken into account: 1. The system should be such as will produce the best quality and quantity of work. 2. Tt should be satisfactory from the poitt of view of both employer and employee and reward should be related to effort. 3, The scheme should be clearly defined and intelligible to workers. The workers should be able to calculate wages on their own. If the workers do not understand the system, they may view it with suspicion. 4, It should guarantee a minimum living wage to each worker, irrespective of his efficiency. 5, No maximum limit should be placed on the amount of individual earnings. 6. The earnings of the workers should not be affected by matters beyond their control. ‘They should not, for example, be penalized for production losses due to power failure, machine breakdown, etc., for which they are not responsible. 7. It should reduce labour turnover and labour absenteeism. 8. The system should be flexible so that changes may be introduced as and when necessary, 9. The system should be capable of operation without excessive clerical work. Those methods should be avoided which demand much detailed recording of time, quantity of output, ete. 10. If possible, the system adopted should be one which is in vogue in that particular industry or in that particular locality METHODS OF REMUNERATION (Systems of Wage Payment) fere are two basic methods of labour remuneration: \@Time Rate System \(Wfiece Rate System In addition, there are a number of incentive plans to induce workers to work hard so as to produce more and earn more.2an2tzo17 Ready Reaay Ready Roady “| Ready iture & rest) Principal notar 3.26 Employee Cost (Labour Cost Conrenal oe] ser I Tineiato) [Fisserme) [welwdual || Gr] [acon cere plane || nent } Indect fecnaret| | morta %Presinan on t 2, Rucker plan Promsbating 5 Towne pan gets! ____, Divert peters Teyerepan | ((Novmonen nonin) 2. Merrick’ plan| 3. Gants plan. Fig. 3.12: Methods of Labour Remuneration ime Rate System Under time rate system, workers are paid according to the time for which they work Payment may be on hourly basis, daily basis or monthly basis. In this system, no consideration is given to the quantity and quality of work done. When payment is made ‘on hourly basis, total wages payable are calculated as follows: Wages = No. of hours worked x Rate per hour For example, if a worker is paid at the rate of €25 per hout, his wages for a day of 8 hours will be: 8 hours x €25 = %200. ‘Though this is the oldest system of wage payment, it is still commonly used these days. Suitability Time wage system is suitable for the following type of situations: (Where quality of work is more important than quantity, e., high class tailoring. (i Where output cannot be measured in quantitative terms, ¢,, in the case of indirect workers, like watchman, cleaners and sweepers (iif) Where output is beyond the control of the worker, eg., in process industries the flow of work is regulated by the speed of conveyor belt or where the work of a worker is dependent on the work of other workers. (iv) Where work is being done on'a small scale so that close supervision is possible. (0) Where the worker is a learner or an apprentice. Advantages The main advantages of time rate system are: ‘imipiicity The system is simple and calculation of wages is easily understood by the workers. 2. Security to workers Workers are assured of a certain amount of wages payable even if there is stoppage of work due to power failure, machine breakdown, etc. This gives a sense of security to workers.1c — employee Cost (Labor Cost) sm 2202/2017 | 3, Quality of work As this method does not give weight tothe quantity of work done, Srorkers can concentrate on the quality of goods produced. Thus, the quality of work under this method is better. + ‘4. Accepted by trade usions Trade unions mostly favour this method because it treats ail workers alike and no distinction is made between efficient and inefficient workers, 5, Economical Under this method, no detailed records are required to be maintained regarding the work done by workers. This results in saving of clerical costs Moreover, workers avoid over-speeding and cause less damage to plant and machinery and also materials. This also results in economy. sadvantages The main disadvantages are: {No incentive It offers no positive inducement to workers to improve performance as it does not distinguish between efficient and inefficient workers. 2. Low quantity When workers are paid on time basis, they tend to be slow in work. This results in lower production quantity. 3, Extra supervision costs Under this method, extra supervision is needed so that workers do not waste time. Appointment of additional supervisors increases cost. 4. Costing difficulties From costing point of view, it creates difficulties in the calculation of labour cost per unit because the output is constantly, fluctuating. jl 5. Idle time Workers waste a lot of time, resulting in increase in idle time. | k Faas to Piece Rate System | le ‘Wages under this system are paid according to the quantity of work done. A rate is fixed pper unit of production and wages are calculated by the following formula: {| ‘Wages = Rate per unit « No, of nits produced. | Ready 3 For instance, if rate per unit is €17 and during a day a worker has completed 10 units, | | then his wages will be 17 x 10 units = €170, This method does not give any consideration to the time taken by the worker in completing the work. Only quantity of work is taken into account for calculating wages. | Suitability of piece rate system Conditions under which piece rates may be usefully employed are: (@ Where production is standardized and repetitive in nature (®) When the aim is continuous maximum production (6) Where the output of workers can be measured (@ Where workers continue at the same job for long periods (©) Where the standard time required to complete a job can be measured accurately Advantages Piece rate system has the following advantages: 1. Incentive to efficient workers As remuneration is in proportion to the worker's effort, the method provides a strong incentive to work more. 2. Increase in production Each worker tries his best to produce more to earn higher wages. This results in increase in production. 3. Lower cost On account of increase in production, fixed cost per unit is reduced resulting in higher profit. [Ready | Paine solaranai2or7 Ready Reads Ready Ready inure & rest) >encipal solar | Ready 3.28 Employee Cost (Labour yg ‘4 Equitable This system is more equitable than time rate system because wages, . Paid according to the efficiency of each worker. 5: Decrease in the need for supervision Stic supervision is not necessary beta the workers are themselves interested in maximizing their earnings through wt maximization of output. & Simplifies costing As wages are paid at a rate per unit, this method simpli cost ascertainment because labour cost per unit is known in advance. 7 Simple and easy This method is simple and is easily understood by the Workeg, Disadvantages Piece rate system suffers from the following limitations: 1, Poor quality of work This method lays too much emphasis on quantity g Production and ignores quality of work. In order to maximize their wages, workes ay try to produce more and more without caring for the quality of productag 2. No security of wages This system does not guarantee a minimum wage te ¢ Worker. If a worker is not able to complete his day's work, for any reason, he's aid less wages, Thus, earnings of workers are uncertain. 3: Misuse of materials and equipment In the greed to produce more, workers may cause wastage of materials and damage to plant and machinery. 4. Injurious to health of workers In an effort to earn more wages, workers try ‘work excessively and with speed. This proves injurious to the health of workers 5. Opposed by trade unions Piece rate system is generally opposed by trade unions because it creates inequality in the wages of workers. Slow and inefficient worker feel jealous of the higher wages of their fellow workers. 6. Difficulties in fixing piece rate Fixing equitable piece rate is quite a difficult task and may require considerable amount of work in the form of time studies, 7. Unsuitable in certain cases This method does not suit where work is of artistic and refined natures. INCENTIVE PLANS Both time rate system and piece rate system, discussed above, have their merits and demerits. Incentive plans attempt to combine the good points of both the systems. ‘The primary purpose of an incentive plan is to induce a worker to produce more to earn a higher wage. Naturally, producing more in the same period of time should result in higher pay for the worker. Because of greater number of units produced, it should also result in a lower cost per unit for fixed factory cost and also for labour cost. Principles of a Good Incentive Scheme A good incentive scheme should have the following features: 1. The scheme should be simple and easily understandable by workers so that a worker should be able to calculate his own wage easily. 2. The scheme should be fair to both employer and employee. It should link reward with effort. 3. The cost of operating the scheme should be reasonably low. 4. The standard of performance should be scientifically set and should be within the reasonable teach of an average worker. 5. No upper limit should be put on the earnings of workers. fe 2 earzaroel20%7 [ Reaay ~ Ready] [Rear | [Reser | | | ites) vres(9) — >inepol iota Cost (Labour Cost) 3.29 6, The scheme should have the approval of workers and the union. 4. No worker should suffer a deduction of eaning® for factors beyond his control such we mnachine breakdown, power failure, ec. ‘The scheme should provide a satisfactory system o control 4, Thescheme should be conducive tothe setting uP of standard costs and budgetary control. Standards once set should not be changed unless there is change in the method of production or other factors. 11, The scheme must be relatively permanent anc should not be frequently changed. 1D, Indirect workers should also be included under the incentive scheme. TB. Workers should be properly educated about the scheme and motivated to attain high standards. Types of Incentive mea 1, Halsey Premium Plan ‘his plan was introduced by F A Halsey in 1891.1 is 2 simple combination of time and. ate systems, The main features of this plan are as follows: fa) Workers are paid at a rate per hour for the actual time taken by them. (t) A standard time is set for each piece of work oP oF ‘operation. {@) Ifa worker takes standard time or more than the standard time to complete his ara is paid wages for the actual time taken by him at the time rate. In other words, time wages are guaranteed (@ Ifa worker takes less than the standard time, he is paid 2 bonus equal to 50% of tha dine saved at the time rate fixed. Thus, under this system, total e277" ofa cae tan are equal to wages forthe actual time taken by him plus & bonus. ‘The formula for calculating bonus and total earnings is as follows: Jf supervision and production 10. [fetal earnings = Tim Fae 5 Tame Gaken © BOG of [Time saved < Time rate] Example: Standard time (or Allowed time) 50 hours Wage rate per hour 3 Actual time taken = 42 hours Thus, time saved = 50 hrs ~ 42 hrs = 8 hours Eamings = 3 x 42 hrs + 50% of (6 hrs x %3) = 1126 + 12= 7138 Advantages of Halsey Plan 1. Ibis easy to understand 2. tt guarantees a minimum time wage to all the workers. Thus, slow and relatively inefficient workers have nothing to feat from it 3. The benefit resulting from savings in time is equal employer, lly divided between worker and330 Employee Cost Lato fol 4. Bonus is separately calculated for each job. Time saved by a worker o adjusted against excess time taken by him on another job. 1 224022017 Monejebing > 4 l Disadvantages of Halsey Plan ' I 1. Workers do not lke the idea of sharing the benefit of time saved by them, wing | employer, a | 2 It does nt provide the employer with full protstion aginst high rate set | Ready 3. Extra efficiency of a worker is not fully rewarded. } 1 2. Halsey Weir Plan 2: | This method is precisely the same as Halsey Plan except that in Halsey Weit Plan the | is equal to 30% of the time saved. A Rea 3. Rowan Plan 1 | This plan i also similar to Halsey Plan except in the calculation of bonus. The main feta sa | of Rowan Plan are as follows: ‘ae | (@) Wages are paid on time basis forthe actual time worked by the workers. | be | Rea () A standard time is determined for each piece of work or job. sm (0) If worker completes his work in standard time or in more than the standard tm} 2 he is paid wages for the time actually taken by him. lowe (2) Ifa worker completes his work in less than the standard time, he is entitled f° 2 bonus. oF ee (e) Bonus is that proportion of wages of actual time taken which the time saved be | to the standard time. Its formula wo! sav | Time saved | aera x hig | Bonus = eilowed * Time taken x Time rate we Reaay a | Eamnings = (Dime taken x Time rate) + Bonus | Example: . | Standard time = 50 hours ie Reaay —] Wage rate per hour = 8 i | Actual time taken = 42 hours Calculate earnings and bonus under Rowan Plan, i‘ Time Saved = 50 hrs ~ 42 hrs = 8 hours ; — Shrs Bonus = TE x 42 hours x %3 = €20.16 nl Earnings = (Time taken x Time rate) + Bonus aoe (42 hrs x ®3) + %20.16 7— = t146.15 Advantages of Rowan Plan 1. Like Halsey plan, it provides guaranteed minimum wages to workers. 2. It protects the employer against loose rate setting. >encpal rotar220022017 | Reaay Ready Ready Ready [Reser t2ofa7 331 cost (Labour Cast) 4. i paysa higher bonus than that under the Halsey plan, upto 50 per cent of the seandard time saved. 4 The worker is not induced to nish through the work because if time saved is more + 50 per cent of the standard time, the bonus increases 2! 2 decreasing rate. g, Ir provides good incentive for ‘comparatively slow workers and beginners. tages of Rowan Plan 1, Calculation of bonus is complicated and ma ‘cho may suspect the employer's motives 2, Incase of extra efficient workers, bonus is less than under Halsey Plan. This is so pen the time saved is more than the time taken, xy not be easily understood by workers ‘Comparison of Halsey Plan and Rowan Plan 1, Bonus When time saved increases, bonus under Halsey Plan also keeps on ing But under Rowan Plan, when ime saved increases, ‘bonus increases only when spomfaved is up to 50 per cent ofthe standard tme or allowed time; thereafter, amount Ptonds starts declining. At 50 per cent of time saved, ‘bonus under both the plans is the one 50 per cent of standard time saved, bonus under Rowan Flan is higher than sit of Halsey Plan and after 50 per cent of the time saved, bonus under Rowan Plan is vier than that of Halsey Plan. Its interesting to note that ‘under Rowan Plan, a person ronttpas saved 60 per cent of time allowed ears the same amount of bonus if he saves Wiper cent of the time allowed. Earnings per hour Under Halsey Plan and Rowan Plan, camiig® Rey hour of veorkars Keep on increasing, But rate of eamings under the two plans differ. When time ota is less than 50 per cent of time allowed, the rate of increase in POL ‘hour earnings is + swan Plan whereas, when time saved is more than 50 per cent of Hime allowed, nighe raf inerease in per hour earning is higher in Halsey Plan. At 50 per cent time saved, famings per hour under both the schemes are the same. fect on labour cost Labour cost per nit decreases as production increases OF tothe standard; thereafter, it continues to decrease but not so rapidly, The O*! Pet unit ee a gowan Plan is higher than under Halsey Plan until ime saved is 9 ot cent of anit lowed. Thereafter itis lower and soon becomes substantially lower. At 50 per cent time saved, labour cost per unit is the same under both the plans. “These comparative features may be seen in the following illustration. Mustration 3.2 ‘The following are the particulars given to you: Standard time 10 hours ‘Time rate 33 per hour under Halsey plan and Rowan Plan if time taken is Prepare a comparative table ould clearly show the amount hours: 8 hours, 6 hours, 4 hours and 3 hours. The table shi of bonus payable, methods, State at least one point of distinction between Halsey the light of your calculations. he aynount of total wages and labour cost per hour under the fo plan and Rowan plan in332 Employee Cost (Labour Og Pat Solution: Statement Showing Comparative Results under Halsey and Rowan Plans Time Time ‘Time ‘Time ‘Bonus ‘Total ‘Labour com Scheme allowed taken saved ages wages per hour | (Gis) iis) iis) ee 2 ¢ _ eee hse | Habey = 109d | Rowan = 191MM | case it | Haley = 108280007 Rowon = 10 BBD Ra] ese Ut Fabey = 104m] Dk Rowan 10 GBD dD case 1V Haley 10} 9m) Rowan = 10 #18 kD cue V Haley = 1379105085) 0 | Rowan 037965013 ——— 8 SSA Conclusion The above table shows that when the time saved is less than 50 per cent Reaay of the time allowed, Rowan Plan pays a higher amount of bonus than Halsey Plan. Aer 50 per cent of time saved, Halsey Plan pays a higher amount of bonus. 4. Taylor’s Differential Piece Rate System This system was introduced by F W Taylor, the father of scientific management. The main Rag {features of this incentive plan are as follow: (a) Day wages are not guaranteed, ie, it does not assure any minimum amount of wages to workers. () A standard time for each job is set very carefully after time and motion studies. (©) Two piece rates are set for each job—the lower rate and the higher rate. The lower piece rate is payable where a worker takes.a longer time than the standard time to complete the work. Higher rate is payable when a worker completes the work within the standard time. In other words, lower piece rate is payable to inefficient workers and higher piece rate is payable to efficient workers. Usually, these rates are 83 per cent of the piece work rate for inefficient workers and 175 per cent of the piece work rate for efficient workers. Example: Standard production Working hours per day 8 units per hour 8 hours Lower rate % per unit | Higher rate 3875 per unit ins Worker X produces 7 units Worker ¥ produces 9 units inept totar2am02l2017 Ready Ready Ready | >éncpal tzotar nployee Cost (Labor Cost) ‘Wages of worker X and Y under Taylor's plan will be as follows: Worker X - He has produced 7 units which is below standard. He will, therefore, be dat the lower rate of & per unit. His wages will be 7 units @ %5 = %35. Worker Y - He has produced 9 units which is above standard. He will, therefore, be dat the higher rate. His wages will be 9 units @ %8.75 = 77875. ‘twill be seen that there is a great difference between the wages of an efficient and an inefficient worker. ‘Advantages and Disadvantages of Taylor's Plan This plan provides strong incentive tpeffcient workers, The calculation of wages is also not difficult and can be understood by the workers. However, the system suffers from the following shortcomings: {@) It severely penalizes the workers who produce slightly less than the standard output. (#) It does not guarantee minimum wages. (0 It makes wide discrimination between efficient and inefficient workers and thus creates rivalry. This may weaken their unity. 5, Merrick’s Differential Piece Rate System (Multiple Piece Rate System) ‘This is a modification of Taylor's plan. While Taylor prescribed two rates, Merrick’s plan lays down three rates. The lowest rate is for the beginners, the middle rate is for the developing workers and the highest rate is for the highly efficient workers. Efficiency of the workers is determined in terms of percentages. Thus, the rates of remuneration are: Level of efficiency Piece rate Upto 83% ‘Ordinary piece rate 83% to 100% 110% of ordinary piece rate Above 100% 120% of ordinary piece rate Like Taylor's plan, this method also does not guarantee minimum wages. The general criticism levelled against Taylor’s plan also applies to it except that it lessens the punitive character of Taylor's plan. Mlustration 3.3 Standard output = 150 units per day of 8 hours Piece rate = 20.20 per unit ‘Output of A 100 units, B 135 units and C 180 units Calculate the earnings of A, B and C workers under Merrick’s Differential Piece Rate System. oy, ___Aetual output Eficioncy in % = Sard output * 10° 100 2 100 , 100 = 662 % 150 5 135 B= +2 x 100=90% 150zarnareoi? Ready Ready >ncipal notar 334 Employee Cost (Labour Coy 180 C= FB «100 = 120% Rates applicable: A = 20.20 per unit (normal rate) B= 20 x 110% =%022 C= 2.20 120% == F024 Earnings: A= 100 units x %0.20 = %20.00 B= 135 units x %0.22 = %29.70 C= 180 units x 2024 = %43.20 6. Gantt’s Task and Bonus Plan The main features of this plan are as follows: (@) Day wages on time basis are guaranteed to all workers. @® This plan isa combination of time rate, differential piece rate and bonus, © A standard is set and remuneration is calculated as follows: (When output is below standard—payment at time rate. (i) When output is at standard—payment at time rate plus 20% bonus. (ii) When outputs above standard—payment at high piece rate. Illustration 3.4 Calculate the earnings of X, Y and Z when their output, in a day of 8 hours, is X-75 unit, ¥-80 units and 2-85 units respectively. Guaranteed time rate is 220 per hour and standard output is 10 units per hour. High piece rate is fixed at €3.50, Solution: Standard output in 8 hours = 10 x 8 = 80 units Earnings of X: His output is below standard and thus he will be paid at time rate. “. X's earnings hours x €20 160 Enrnings of Y: His output is at standard and thus he is entitled to a bonus of 20% on time rate. His rate per hour is %20 + 20% = %24 = Y’seamings = 8 hours x 24 =t92 Exrnings of Z: Wis output is above standard and thus he will be paid at the high piece rate, + Z’seamings = 85 units x %3.50 = 8297.50 The advantage of Gantt’s Task and Bonus Plan is that it provides security for the less elficient and a high incentive for a more efficient worker. Calculation of wages under this plan is also simple to understand. 7. Emerson’s Efficiency Plan ‘This scheme is designed to give encouragement to the slow workers to perform better than before, Time wages are guaranteed. The standard output in this plan is fixed to represent 100% efficiency. A bonus is paid to a worker whose efficiency exceeds 66%. As efficiency \seas @212017 Ready Ready ady Wrote my mpeg Cost (Labour Cost) 3.35 ces, the bonus also increases gradually in steps, at stated rate, so that at 100% ingency, bonus would ise to 20% of wages. Beyond 100% the bonus increases 2¢ 195 of eric rate for each Iper cent increase in efficiency. It can thus, be shown as below in a tabular form: — Bonus 7 hhem ficiency (@) Below 6635% No bonus (Only time wages) (i) 634% 10 100% ‘Bonus increases in steps and rises to 20% at 100% efficiency (Over 100% 20% bonus plus 1% bonus for each increase of 1% in efficiency frample: Standard output in 8 hours = 60 units ‘Actual output in 8 hours 72 units ‘Time rate 32 per hour Calculate the earnings under Emerson’s plan. Bificiency in % = Be 100 = 120% Bonus % = 20% + 20% = 40% Time wages = 8 hours @ 2 316,00 ‘Add: Bonus 40% of T16 %6.40 Total earnings 40 In this example, if the actual output of worker is upto 40 units, ic, 66% efficiency, he will not get any bonus and his wages will be simply time wages, ic, 8 hours x G=U16. The worker will start earning bonus if his output in 8 hours is above 40 units. If he produces 60 units, i., when his efficiency is 100%, his total eamings will be: Total earnings = ‘Time wages + Bonus = (hrs x Z) + 20% = 16 + 3.20 = £19.20 Advantages 1. Tt guarantees minimum time wages 2. Iris easy to understand and simple to operate 3. It provides an incentive to beginners and even to those who are less proficient. Disadvantage The incentive offered is considered too inadequate to motivate efficient and ambitious workers. 8. Bedaux Plan In this plan, standard time of each job is determined in minutes known as Bedaux points, or B's. One B unit represents the amount of work which an average worker can do under ordinary conditions in one minute. The standard time is determined by work study and each job is assigned a number of B's.zaman? Reeay | Reaay Roady Reads Ready | inure & es(0) >ncpal totar 3.36 Employee Cost (Labowr Cog) Under this system, the worker receives his daily or hourly rate plas 75 per cent of the points saved, multiplied by one sixtieth of his hourly rate. The remaining balance of 25 per cent is paid to supervisors and indirect workers. Thus: Bonus = No.of Bssavedxhourly rate, 75. 60 100 Earnings = (Hours worked x Hourly rate) + Bonus Example: Standard time for job = 600 B's Hourly rate %2, Time taken 8 hours, i.e, 480 minutes Points or B’s saved = 600 ~ 480 = 120 120x275. _ Bonus = Ee = Earnings = (8 hours x %2) + %3 bonus = %19 If the worker takes 12 hours to complete the job, i.e. more than the standard time, he will be paid for the actual time taken, ie. 12 hrs x %2 = €24, ‘Time wages are thus guaranteed to those who are not able to save any points. It may be noted that the Bedaux Plan is not different from the Halsey Plan except that bonus is 75 per cent of the time saved instead of 50 per cent. The system is particularly suitable where output can be measured with greater accuracy and conditions are standardized. To make the system a success, very accurate time study is required for each operation to set standard time in terms of standard minutes. Advantages 1. It guarantees minimum wages to all workers, 2. Output of workers is measured in terms of common units known as B's. This makes easier the task of recording production of workers and comparing it with standard. Suitable data for production control becomes easily available. 3. As the benefit of 25 per cent of time saved is given to supervisors and indirect workers, Bedaux Plan may be extended to the department as a whole, including indirect workers. Disadvantages 1. Detailed calculation of ‘B’ units for a large number of jobs involves enormous amount of clerical cost. This is because accurate time study is required for every ‘operation. This system is thus comparatively costly. 2. This system is generally not preferred by workers because they do not get the full benefit of the time saved by them. GROUP BONUS PLANS In the schemes discussed so far, the bonus, to be paid has been calculated on the basis of individual worker's performance. But there are certain jobs or operations which are2av0eieo%7 Ready Ready Ready iture& ses(o) nepal teotar "ur Cony tof the Employee Cost (Labour Cost) a - required to be done collectively, by a group of workers. In continuous production, for txample, work flows in a sequence or in assembly work for televisions, radios, scooters, te, a team of workers is engaged on various operations. As such, it becomes necessary to introduce bonus schemes for collective efficiency of the group as a whole. The intention is to create a collective interest in the work. The total bonus determined is distributed ‘among the members of the group on an equitable basis. The following bases of distribution are commonly used: (@) Equal distribution, if skill and grade of workers in the group is uniform (@) On the basis of time wages of each worker (©) In proportion to the time rate of each worker, where each worker has devoted equal time (@ Ina fixed ratio determined in advance on the basis of merit rating Suitability Group bonus schemes may be usefully employed in the following drcumstances: (a) Where it is not possible to measure the performance of each individual worker (&) Where the workers constituting a group possess the same or equal skill and efficiency ‘ (9) Where the number of workers constituting a group is not very large (@) Where production is dependent on the collective effort of a group of workers as a whole Advantages The main advantages of group bonus schemes are as follows: 1, They encourage cooperation and team work among the workers. 2, They reduce absenteeism because an absent member weakens the group and most workers do not like to let down their team. 3. The calculation of wages requires less clerical work as it involves recording of the output of the group and not of individual workers. 4. Supervision work is reduced because less efficient workers are taken care of by the efficient ones. 5. Indirect workers can also be included in the scheme by allocating such workers to the groups, Disadvantages The main disadvantages of the system are: 1. Group bonus scheme is unfair to efficient and hard working workers of the group because an efficient worker is penalized for inefficiency of other workers in the group, 2. There may be difficulties regarding fixing the amount of bonus and the basis of its distribution among workers in the group. 3. There may be some discontentment when workers in the group are of widely varying skills and efficiencies. Types of Group Incentive Plans 1. Priestman Plan This plan was first used by M/s Priestman Bros Ltd of Hull in 1917. According to this plan, a standard is set for the output to be achieved weekly by a factory as a whole. This standard may be in terms of units or points (Bedaux Plan). The actual output of the factoryzamereoi7 Rady Ready | >tncoal totar 3.38 Employee Cost (Labour Cost) is compared with the standard and if actual exceeds standard, the employees are paid a bonus in proportion to the increase. 2. Towne Plan This plan was introduced in 1886 by Towne in the United States of America. Under this plan, actual labour cost is compared with the predetermined standard set for labour cost, If the labour cost is less than the standard so set, 50% of the saving so effected is distributed as bonus to individual workers prorata with the wages earned. The supervisory staff also gets a part of this bonus and thus encouragement is provided to reduce cost. 3. Rucker Plan (Share of Production Plan) Under this plan, labour receives a constant proportion of the ‘added value’. The term ‘added value’ is defined by CIMA as ‘the change in market value resulting from an alteration in the form, location or availability of a product or service, excluding the cost of bought-out materials or services.’ Value added is not the same thing as conversion cost as it also includes profit. In this plan, ratio of wages to added value is determined and if the ratio of wages reduces because of increase in added value, bonus payment is made to bring the reduced wage ratio in level with the predetermined ratio. INCENTIVE PLANS FOR INDIRECT WORKERS As it is difficult to measure the output of indirect workers, they are generally excluded from the incentive plans. But indirect workers are as essential for production as direct workers and as such, full increase in production cannot be obtained without the cooperation of indirect workers, Therefore, incentive plans may be introduced for indirect workers either to increase the efficiency of the services they provide to direct workers or to induce foremen and supervisors to increase departmental efficiency and thus, reduce costs. Also payment of bonus to indirect workers, when it is also being paid to direct workers, will prevent labour unrest. Bases of Payment of Bonus to Indirect Workers The indirect workers may be paid a bonus on any one of the following bases: 1. Where indirect workers serve a group of direct workers, they may be paid a bonus on the basis of performance of the group of direct workers whom they serve, ¢., maintenance workers attached to a particular department, 2. When indirect workers provide general services, e.g., sweeping and storekeeping, bonus may be paid on the basis of the output of the whole factory. 3. On the basis of job evaluation and merit rating of indirect workers. 4. On some arbitrary basis, ike enhanced day rate so as to include an element of bonus in the rate itself Advantages The main advantages of providing bonus to indirect workers are: 1, Creation of team spirit and healthy atmosphere of work. 2. Maintenance of efficiency of important services, like plant repairs and maintenance, material handling, storekeeping, ete. 3. Elimination of labour unrest and reduction in labour turnover. 4. Overall improvement in efficiency which in turn contributes to cost reduction.2ar02i2017 | Reaay aay dy ies resi) ¥ ipal tora “TReaay | [Ready — Cosy paid a 1 this cost, uted “also ded nin also, atio the ROe USAR Employee Cost (Labour Cost) 330 CO-PARTNERSHIP AND PROFIT SHARING Corpartnership or co-ownership isa scheme whereby employees are given an opportunity to share in the capital of the business and to receive a part of the profit that accrues to their share of ownership. Some companies provide loans to employees to buy shares, while others reserve a specified number of shares for allotment to employees. ‘Under the profit-sharing schemes, the workers are paid in addition to wages, a predetermined share ofthe profits ofthe undertaking. In India, workers’ share is governed by the Payment of Bonus Act, 1965. ‘A co-partnership scheme may be arranged in conjunction with a profit sharing scheme, whereby the bonus to workers is to be retained as an investment in the company. This investment may be in the form of special shares, not carrying voting rights but entitled to a fixed dividend or it may be in the form of a loan carrying higher rate of interest, Both co-partnership and profit-sharing schemes enable the workers to share in the prosperity of the business as a whole and give them a tangible interest in its future, ‘Advantages Co-partnership and profit-sharing schemes have the following advantages: 1. The worker-management relations improve and workers take keen interest in the management of the concern. 2. It tends to reduce labour turnover as many companies provide for a minimum period of service as a condition for participation in these schemes. 3. These schemes create in the workers a genuine desire to work wholeheartedly for the concern and make proper utilization of materials and machines. Disadvantages These schemes suffer from the following shortcomings: 1. The bonus accruing to workers may not be based on individual efficiency of workers. This may create a sense of discontentment in efficient workers. 2, There may be a certain amount of distrust about the profits declared by the company and lack of knowledge of finance and accounts may make the workers suspicious. 3, The workers share profits in the good years but do not bear their share of loss incurred in bad years. 4. Apportionment of profit on some suitable basis presents difficulties. 5. Profits are not directly related to the efforts of the workers and may be increased or decreased by good or bad management, market conditions and other factors. ‘These schemes, therefore, maintain no relationship between effort and reward. 6. The trade unions do not favour the principle on the ground that it is a mischievous move on the part of capitalists to create disunity in the ranks of working classes. NON-MONETARY INCENTIVES ‘Workers are sometimes provided with certain incentives, not in the form of higher wages but in terms of favourable conditions of employment. Such incentives are given in the form of better amenities or facilities. Range of such incentives is extremely wide. Some such benefits are completely free, while in certain benefits there may be a partial contribution by employees. * Non-monetary incentives help in attracting better workers, reduce labour turnover and absenteeism, promote better industrial relations, encourage loyalty and keep the workers happy and satisfied.zaro2reoi7 aay Ready Fedy Reaay inure & vrosi0) y >encpal rota ony Employee Cost (Labour Coxty Examples of non-monetary incentives are free medical facilities, free education to the ‘workers’ children, housing facilites, transport facilities, subsidized meals in canteens, superannuation and pension schemes, sports and recreation facilities, ete PROBLEMS AND SOLUTIONS Problem 3.1 From the following information, calculate labour turnover rate and flux rate: No. of workers as on 01.01.2012 = 7,600 No. of workers as on 31.12.2012 = 8,400 During the year, 80 workers left while 320 workers were discharged, 1,500 workers were recruited during the year of whom 300 workers were recruited because of exits and the rest ‘were recruited in accordance with expansion plans. (CA Inter) Solution: Labour Turnover Rates : Workers who left + Discharged aration M = See hole Saree? 100 0 oe ated ‘Average number = = A 100 = 5% (7,600 + 8,400) +2” 8,000 Workers replaced (@) Replacement Method = See * 100 = 2% <10=375% 3000 ; ___ Separations + Replacements CO): Hi Rabe = Averagenumber—* 1° 400 + 300 ~ 404800 100 = 8.75% 8,000 Alternatively, Separations + Accessions Fic Kate ‘Averagenumber—* 1 400+ 1500 _ 35.75% 5,000 Problem 3.2 ‘The cost accountant of Y Ltd has computed labour turnover rates for the quarter ended 31 March 2005 as 10%, 5% and 3% under Flux method, Replacement method and Separation method, respectively. If the number of workers replaced during that quarter is 30, find ‘out the number of (1) workers recruited and joined, and (2) workers left and discharged. (CA Inter)zaroereo17 [ Reaay Ready iture& resi) >iepal iota nplyee Cost (Labour Cost) 341 Solution: No. of replacements _ “Average no. of workers 5 30 00 ~ Average no. of workers Labour turnover rate = ‘Average no. of workers = 30 x ” = 600 1. Calculation of workers recruited and joined No. of separations + No. joined Labour tumover rate (Flux method) = ores no, of workers 10 _ *18+No. joined 100 600 No. joined = “55° Jo, joined = “2 — 18 =2 ‘Thus number of workers recruited and joined 2, *No. of workers who left and discharged Labour tumover rate __No. of separations _ (Separation method) ~ “Average no. of workers _3_ __ No.of separations 100 600 No. of separations = 18 ‘Thus, the number of workers who left and discharged = 18 Problem 3.3 ‘The management of Sunshine Ltd wants to have an idea of the profit lost/foregone as a result of labour tumover last year. Last year sales accounted to %66,00,000 and the P/V Ratio was 20%. The total number of actual hours worked by the direct labour force was 3.45 lakh. As a result of the delays by the personnel department in filling vacancies due to labour tumover, 75,000 potentially productive hours were lost. The actual direct labour hours included 30,000 hours Bttributable to training new recruits, out of which half of the hours were unproductive, The costs incurred consequent to labour turnover revealed on analysis the following: z Settlement cost due to leaving 27,420 Recruitment cost 18725 Selection cost 12,750 Training cost 16,105zer02reo17 — Rear] Reaay | | Ready Ready — “| Reeay | Ready ites) resi) Yencpal W2otar 342 Employee Cost (Labour Coy ‘Assuming that the potential production lost due to labour turnover could have joe: sold at prevailing prices, ascertain the profit foregone/lost last year on account of labow tumover. (CA Tite Solution: _ D Statement of Profit Foregone due to Labour Turnover SS z Settlement cost due to leaving 27420 Recruitment cost 18725 Selection cost 12,750 Training cost 16,105 Contribution foregone 3,00,000" Total profit foregone 3,75,000 3 Working Notes: ‘Actual productive hours (345,000 ~ 15,000) = 330,000 Sales per productive hour (866,00,000 + 3,30,000 hrs) = t% Sales foregone (75,000 hrs x €20) = 715,00,000 Contribution foregone (15,00, x 20% P/V ratio) = %3,00,000 Problem 3.4 a Calculate the normal and overtime wages payable to a workman from the foilowing date Days Hours worked Monday 8 Tuesday 10 Wednesday 9 Thursday u Friday 9 Saturday 4 Normal working hours Shours a day Normal rate 0 per hour Overtime rate Upto9 hours in a day at single rate and over 9 hours in a day at double rate Or Upto 48 hours per week at single rate and cover 48 hours at double rate, whichever is more beneficial to the workman.343 tour Cony FE gyplovee Cost (Labour Cost) enn? we solution: ‘labour Calculation of Normal and Overtime Wages “A Inter) | | Total Normal Overtime pus hours | Normat | wages - worked | hows | @10 | Hrsat | Hrsat | Overtime single | double | wages | an z rate rate t | ‘Monday 8 8 80 - | - = Tuesday 0 8 °0 1 1 20 Wednesday | 9 8 %0 1 a 10 Teal ‘Thursday. u 8 80 1 2 50, Friday 8 80 1 - 10 | Saturday 4 0 _ - _ Foal | St “ 40 4 3 100 | Ready — | Total wages under this plan = %440 + €100 = 8540 ‘Normal wages (48 hrs x 210) 480 (Overtime wages (3 hrs x 720) = %60 Ready Problem 3.5 An employee of XYZ Co. gets the following emoluments and benefits: | dima: (@) Salary %250 pm (@) Dearness Allowance Beaty On Ist 7100 of salary seve 400 (On next %100 of salary 00 On balance of every %100 ou. €80 or part thereof (© Employer's contribution —to Provident Fund sn 8% of salary and DA. —to EST 4% of salary and D.A. (@ Bonus .. 20% of salary and D.A. (©) Other allowances soos 82,725 per annum ———— A works for 2,400 hours per annum, out of which 400 hours are non-productive but ver treated as normal idle time. A worked for 18 effective hours on job No. 13 where the cost of direct materials equals 4’s earnings and the overheads applied are 100% of prime cost. The sale value of the job is quoted to earn a profit of 10% on such value. You are required 7 ad to find out: is (@) Effective hourly cost of ‘A’ and (8) Effective sale value of job No. 13. (ICWA Inter) “enc iotazarv2rao7 “| Reaay | “Rea | ites) vros(9) >encpal t2otar ad Employee Cost (Labour Cy Solution: (@) Computation of Effective Hourly Cost A. per month Sslary of A | P50 Dearness allowance (400 + 100 + 25) | ks Salary + DA. Salary + D.A. per annum (775 x 12) Employer's contribution to PF. (8%) To FSI (4%) Bonus (20%) Other allowances Total emoluments Working hours (gross) Less: Normal idle time + Effective working hours fective hourly cost of A = 15,001 + 2,000 = 87.50 per hour (#) Computation of Sale Value of Job No. 13 Direct material Direct labour (18 hrs @ %7.50) Prime Cost Overhead (100% of prime cost) Total Cost Profit (10% of sales or 1/9 of cost) Sale Value Problem 3.6 ‘A company's basic wage rate is % per hour and its overtime rates are: Evening — time and one-third Weekends-double the time During the previous year, the following hours were worked: Normal time 2,20,000 clock hours Time plus one-third 20,000 clock hours Double time 10,000 clock hours The following times have been worked on three jobs: Job 1 Job it Clock hr ‘Clock fr Normal time 000 5,000 Evening overtime 300 600 Week-end overtime 100 50Sour Cog) employee Cost (Labour Cost) 345 earn 2087 + You are required to calculate the labour cost chargeable to each job in each of the following circumstances: ——~ 1. Where overtime is worked regularly throughout the year as the policy of the aa tay company due to labour shortage; 25 2, Where overtime is worked specifically at the request of the customer. 5 [Foe < Basic rate = %6 per hour 4 Evening overtime ~ (%6 plus ®2) %8 per hour | 2 Week-end overtime ~€12 per hour ’ Wages of the previous year: Reasy - Normal time 2,20,000 hours @ %6/hr = %13,20,000 | b Evening overtime 20,000 hours @ %8/hr %1,60,000 | \ Week-end overtime 10,000 hours @ €12/hr = 120,00 | 6 2.50000 hours %16,00,000, [= F ‘Average or inflated rate per hour = 16,00,000 + 2,50,000 hrs. = | o 1. Where overtime is worked regularly throughout the year as the pol j company due to labour shortage, it becomes a part of labour cost. Each job will be charged with the labour cost for the total number of hours worked at the inflated Rae 5 rate. Thus: | Be Job No. I 3400 hours @ %6.40 = %21,760 | 0 Job No. I 5,650 hours @ %6.40 = 36,160 9 Job No. IM 5,350 hours @ %6.40 = 34,240 y 2. Where overtime is worked specifically at the request of the customer, overtime is | Reedy to be charged to the job to be borne by the customer. In this case, each job will be , charged as follows: | Job No. I 3,000 hours @ %6 per hour = %18,000 | 300 hours@ 8 perhour = %2,400 il 100 hours @ 12 per hour = 21,200 Total 221,600 | Job No. TI 5,000 hours@ —% per hour = %30,000 600 hours@ %8 perhour = %4,800 SO hours@ *12perhour = —%600 Total 35,400 y Job No. I 4,000 hours @ —% per hour = %24,000 1,050 hours @ —%8 perhour = %8400 - 300 hours @ €12 per hour = %3,600 Total 36,000 >encpal iotazener Ready Reaay Ready Ready Ready inure & wos(9) x >fncpal totar aa6 Employee Cost Labour Coy i | Problem 3.7 A workman's wages for a guaranteed 44-hour week is 87.50 per hour. The estimated time y produce one article is 30 minutes and under an incentive plan, the time allowed is increase by percent. During a week, a worker produced 100 articles. Calculate the wages under each of the following methods: (a) Time Rate; (6) Rowan System; and (c) Halsey System. Solution: (a) Time Rate System: Wages for 44 hours @ 7.50 = 3330 (b) Rowan System: Std time per article Add: 20% increase 30 minutes per article 6 minutes per article Time allowed under incentive plan _36 minutes per article Actual output = 100 articles Time allowed = 100 x 36 minutes * = 3,600 minutes or 60 hours Time taken = 44 hours Time saved = 60 hrs ~ 44 hrs = 16 hours Wages for time taken = hs@ 750 = 8330 Time taken Bonus = SEN x time saved « hourly rat SS ~ Fime allowed * S™* iaaad 44 = ® *16 750 = 88 Total earnings Is (©) Halsey Plan: Wages for time taken = 44 hrs @ 27.50 2330 Bonus 50% of 16 hrs @ 27.50 360 Total earnings 3390 Problem 3.8 Calculate the earnings of a worker under (i) Halsey Plan and (ii) Rowan Plan from the following particulars 1. Hourly rate of wages guaranteed 0.50 paise per hour. 2. Standard time for producing one dozen articles—3 hours. 3. Actual time taken by the worker to produce 20 dozen articles — 48 hours. (CA Inter) Solution: Standard time to produce 20 dozen @ 3 hrs = 60 hrs Actual time 48 hrs Time saved _12_hoursanareow7 Ready Ready Rese] >neipal rotar ») ae 347 nplyer Cost (Labour Cost) Halsey Plan 1 Bonus => of time saved x time rate hrs «050 = 83 otal eamings = 48 hrs x 0.50 + Bonus = %24+3=%27 Rowan Plan e saved = ime saved, Time taken x Time rate tes Time allowed a ime 22 448 x 0.50 = %4.80 co) Total earnings 8 hrs x 0.50 + Bonus %24+4.80 = 728.80 Problem 3.9 . ‘Avworker produced 200 units in a week's time. The guaranteed weekly wage payment for SS hours is €BL. The expected time to produce one unit is 15 minutes which is raised further by 20% under the incentive scheme. What will be earings per hour of that worker under Halsey (50% sharing) and Rowan bonus schemes? (CA Inter) Solution: () Expected time to produce one unit under incentive scheme = 15 minutes + 20% = 18 minutes ‘Time allowed for actual weekly production 200 units * 18 minutes = 3,600 minutes or 60 hours Time saved 60 ~ 45 hrs = 15 hours Wage rate per hour = 881 + 45 hrs = 1.80 ‘Total Earnings (Halsey Plan) = Hrs worked x Rate per hour + 50% (time saved x rate per hr) 45 x 1.80 + ¥4 (25 hs x 1.80) = 81 + 31.50 = 294.50 Earnings per hour = £94.50 + 45 hrs = %2.10 Total Earnings (Rowan Plan) Time saved ime ,, Rate ze) = Hirs worked * Rate per hour + ( mmesaved orked Rate per hour» (Fed “taken * Bru = 451.80 + (BRS hes x 45 hrs x 1.0) = 881 + 20.25 = T101.25 Earnings per hour = 2101.25 + 45 hrs = 2.25oa Employee Cost (Labour Coy Problem 3.10 XYZ Ltd employs its workers for a single shift of 8 hours for 25 days in a month. The ‘company has recently fixed the standard output for a mass production item and introduce} an incentive scheme to boost output. Details of wages payable to the workers are ag follows: f | (Basic wages/piece work wages at &2 per unit, subject to a guaranteed minimum wage of %60 per day. (i) Deamness allowance at 840 per day. (iit) Incentive bonus: Standard output per day per worker: 40 units; | Incentive bonus upto 80% efficiency: Nil; Incentive bonus for efficiency above 80% : %50 for every 1% increase above 80%, zaroereoi7 Heady ‘The details of performance of four workers for the month of April are as follows: | Worker No. of days Output | worked (units) | A 5 820 Rear] B 18 500 @ 2B 10 D 4 7380 Calculate the total earnings of each of the workers (ICWA Inter Ready Solution: Statement of Eamings | Workers | No. of days | Output | Basic wages | DA Incentive* ] Total earnings | _ worked | units z z z = Ready | A 2 20 160 | 1000 100 2740 B 18 500 ros | "720 = 1800 | ic 2 310 1820 | 1,000 550 3370 | D 24 730 1.560 960 so_| 2570 Working Notes: 1. B’s piece work wages = 500 x €2 = 21,000 only He is thus paid minimum guaranteed wages = 18 days x %60 = %1,080 2. Calculation of incentive: Incentive i 820 units ee q oe 7 25 days 40 units m2) te as a) recttceey = = <0 ™ | 910 Cefn =90% eney = so 70 - Deelicmey = =1% uy 24x40 bd >éinepal totar2ar0el2017 Ready Ready Ready [Ready | [Ready — ituree vres(9) 5 iota 349 Cea Pr gplvee Cos! Latour Cost) problem 3.11 The | caculate the earnings of workers A, B and C under Straight Piece Rate System and teed | ffercks's Multiple Piece Rate System from the following particulars Pas Normal rate per hour %540 Standard time per unit 1 minute = Output per day is as follows: Worker A ~ 390 units Worker B ~ 450 units Worker C - 600 units Working hours per day are 8. (CA Inter) ‘ Solution: vg ~ Rateperhour _ Rs 5.40 Wage rate per unit = Sate Pet hout_ 0.09 igerate Per Unit = Gutput per hour 60 units standard output per day of 8 hrs = 60 units x 8 hrs = 480 units « Eamings of workers under Straight Piece Rate 4 Worker A = 390 units x %0.09 = %35.10 n B = 450 units x 20.09 40.50 C = 600 units x 20.09 = %54.00 y Earnings of workers under Merrick’s Multiple Piece Rate System Workers a a 2a | Slaw | Sem ‘Actual output | ( fststeuzat a0) | =mase 93.75% | 125% Applicable wage rate per unit (8) 098 0.09+10% | 009+20% = 0.099 = 0.108 Earnings 390 units x 0.09 | 450 units « 0.099] 600 units x 0.108 | =esa0 | =taes5 |= tos0 Problem 3.12 Ina factory, payment of wage bonus is made to the workmen based on percentage of time saved of time allowed in the following scale: Time saved (% of standard) Bonus (% of time saved) Upto 20% 10% Above 20% upto 40% Plus 25% of time saved above 20% upto 40% 1 Above 40% Plus 355% of time saved beyond 40% Calculate the earnings of a worker who completes a job in 57 hours, against a standard time of 100 hours. The normal wage rate ‘s &5 per hour. (ICWA Inter)zarnareoi7 | Ready Ready ie & |] vros(0) ¥ >encpal teotar 3.50 Employee Cos (Labour Ogg Solution: Time saved = 100 ~ 57 = 43 hours Normal wages = 57 hrs at %5 = %285 Calculation of bonus Time saved in hrs Bonus hrs Rate Amt First 20 20 x 10% =2 5 Next 20 20 x 25% =5 5 5 Balance 3 3x 33/.% =1 5 5 Total 8 40 Total earnings = 2285 + 40 = €325 Problem 3.13 ‘An article passes through five hand operations as follows: Operation No. Time per article Grade of Worker Wage rate per hour 1 minutes A 20.65 2 25 minutes B 0.50 3 10 minutes ce 70.40 4 30 minutes D 20.35 5 20 minutes E 20.30 The factory works 40 hours a week and the production target is 600 dozens per week Prepare a statement showing for each operation and in total the number of operators required, the labour cost per dozen and the total labour cost per week to produce the total targeted output. (CATntey Solution: Statement of Labour Cost for Each Operation Operation | No. of operators Labour cast of Labour cost TN" | reid for 00 dozens | 600 dozens yer week per daz x ° 4540065 = 1,170 1170+ 600= 195 2 2 7540x050" 1500 1.500 + 600 = 280 fl 8 30x40 040= 480 460 + 600 = 080 2 50) soxsovoas~ 1260 | 1250500 210 Js | 60 x 40 x 0.30 720 720 = 600 = 1.20 « om ={ny FP gnploye Cost (Labour Cost) 351 z2n2ra017 Problem 3.14 ina factory, Ram and Sham produce the sime product using the same input of same tpaterial and at the same normal wage rate 7 Bonus is paid to both of them in the form of normal time wage rate adjusted by the | proportion which ime saved bears to the standard time fr the completion of he product. | Fre time allotted to the product is fifty hours, Ram takes thirty hours and Sham takes j _] forty hours to produce the product, The factory cost of the product for Ram is €3,100 and Ray for Sham €3,280. The factory overhead rate is €12 per man hour. Calculate (i) Normal wage rate; (ji) Cost of materials used for the product; and (i) input of material, if the unit material cost is 716. a i Solution: a; kam stan | z z | | Factory cst 3.100 3280 Lis: Factory overheads | Ready Ram (30 hrs « €12) + 360 ‘Sham (40 hrs x 712) 480 Prime cost 2,740 2,800 Difference in wages = 2,800 - 2,740 = 60 Raa] xk Calculation of wage rate | 8 Suppose wage rate = x 20° 4 Wages of Ram = 30x + (30: x 22) Ready | 10 Wages of Sham = 40x + [40 * 5 . Thus the following equation is made: | (so +40 x 2) - (20: +20: « 2) = 60 50 50, Solve this equation and derive the value of x, | (40x + 8x) - (30x + 12x) = 60 ‘Thus wage rate = %10 per hour 20 ‘Wages of Ram = 30 hnrs x 10 + (» x 10x 2) 420 10 ‘Wages of Sham = 40 hrs x 10 + (# x10x 3) = 7480 Material cost ~ Ram’s job = 22,740 ~ 420 = 82,320 Sham's job = %2,800 - 480 = %2,320 Material input = 22,320 + %16 = 145 units >enepal tzota