Accounting for Labour
MEANING AND DEFINITION OF LABOUR COST
Labour is human resources and participates in the process of production. It is an essential
factor of production. The amount, which is paid to the labour, is known as labour cost and
it is a significant element of cost of a product. Labour cost includes monetary benefit e.g
basic wages and fringe benefit such as fooding, housing, education to the children of
workers, holiday pay, medical facilities etc.
Piece rate system of wage payment
Meaning
The piece is that system of wages payment in which the workers are paid on the basis of
the units of output produced. It does not consider the time spent by the workers. It is a
method of remunerating the workers according to the number of units produced or job
completed. It is also known as payment by result or output. It pays wages at a fixed piece
rate for each unit of output produced.
It is calculated by,
Total wages earned = Production unit x wages rate per unit
Or
Output * Piece rate
TIME RATE SYSTEM OF WAGE PAYMENT
Meaning
The time rate is that system of wages payment in which the workers are paid on the basis
of time spent by them in the factory. Under this system, the workers and employees are
paid wages on the basis of the time they have worked rather than the volume of output
they have produced. Hence, according to this system, wages are paid on hourly, weekly or
monthly basis. Under it, the wages earned by a worker is determined by using the
following formula;
Total wages under time rate system = Time taken x Time rate
Or
=Time taken * wages rate per hour (if wages are paid on hourly basis)
Or
= time spend (attendance) x wages rate per hour / day / week / month
Differences between piece rate and time rate system
Piece rate system Time rate system
Piece rate system is a method of wage payment to Time rate system is a method of wage payment
workers based in the quantity of output they have to workers based on time spent by them for the
produced production of output.
It pays the workers according to the units of output It pays the work according to the time spent in
produced. the factory.
It does not pay for idle time. It pays for idle time.
It requires strict supervision to get the required quality It requires strict supervision to get the required
output. quantity of output.
It helps to fix per unit labour cost in advance. It does not fix labour cost per unit in advance.
It helps maintain a uniform flow of production
It does not bring uniformity in the flow of production
and ensures an efficient use of materials, tools
and causes an excessive wastage of inputs.
and equipment.
THE 2074 SUP QNO.20
TIME RATE SYSTEM OF WAGE PAYMENT
The following information of a worker has been provided:
Working hour per day 8 hrs wages per hour Rs 25
Working days in a month 25 days
Required: total wage for a month
Solution:
Wages rate per hour = Rs 25
Working hours per day = 8 hours
Time taken per month = 25 x8 = 200 hours
We have,
Total wages under time rate system = Time taken x Time rate wages
= 200 x 25 = Rs 5000
2072 SUP QNO.19
The following information’s are given:
Standard time to produce one unit 15 minutes hourly wage rate Rs 80
Total production 1000 units
Solution:
Standard time to produce one unit = 15 minutes
60¿
15000¿ ¿
Time allowed /time taken for 1000 units =1000x 15 min= 15000 minutes or ¿ =250 hours
Or
60
Standard output per hour = 15 = 4 units
1000
Time taken for 1000 unit output = 4 = 250 hours
Time rate (hrs) = Rs 80
We have,
Total wages under time rate system = Time taken x Time rate
= 250 x 80 = Rs 20000.
2072 Set cQNO.20
The working hour of a worker for a week is 40 hours. He worked 50 hours in a week. The normal
wage rate is Rs 100 per hour and overtime paid at 120% of the normal rate.
Solution:
Normal time = 40 hours per week
Overtime = 50 -40 = 10 hours
10 ¿
120¿ ¿
Overtime wage rate = 100 x ¿ = RS 120 per hour
We have,
Total wages = (normal time x normal wages rate) + (over time x overtime wage rate)
= (40 x100) + (10x120)
= Rs 5200
2069 sup QNO.20
Daily wages of a worker working seven hours in a day is fixed Rs 140. Standard output per hour is
fixed 2 units. He produced total 420 units of output during the month.
Solution:
Wages per day = Rs 140
7¿
140¿ ¿
Time rate/ wage per hour = ¿ =Rs 20
Standard output per hour = 2 units
Actual production during the months = 420 units
2¿
420¿ ¿
Time taken for 420 units = ¿ = 210 hours
We have,
Total wages under time rate system = Time taken x Time rate
= 210 x 20
= Rs 4200.
Piece rate system of wage payment
Total wages earned = unit produced x wages rate per unit
2075 Set A QNO.20
Standard output in a day of 8 hours in 56 units. Rate per unit is Rs 100 and a worker worked
180 hours in a month.
Solution:
Standard output per hour = 56 /8 =7
Working hours in a month = 180hours
Production unit in a month= 180 x7 = 1260 units
Wages rate per unit = Rs 100
We have,
Total wages earned = unit producedx wages rate per unit
= 1260 x 100
= Rs12600.
2073 Set A QNO.19
The following information relating to work and remuneration are provided:
Working hours per week 50 hours
Working per year 40 weeks
Output per hour 2 units
Wages per unit Rs 10
Solution:
Standard output per hour = 2 units
Total unit produced in 50 hours (one week) = 50 x 2 = 100 units
Total unit produced for 40 weeks = 40x100= 4000 units
Wages per unit = Rs10
We have,
Total wages earned = unit producedx wages rate per unit
= 4000 x 10 = Rs 40000.
.
2069 SUP SET B QNO 20
Standard time to produce one unit 30 minutes
Hourly wages rate Rs 100
Output produced in a month 10000 units
Solution:
Standard time per unit = 30 minutes
Standard output per hour = 60/30 = 2 units
Wages rate per hours = Rs 100
Wages rate per unit = 100/2 = Rs 50
We have,
Total wages earned = unit producedx wages rate per unit
= 10000 x 50
= Rs 500000.
