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Lecture # 24

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7 views5 pages

Lecture # 24

Okv

Uploaded by

alihassan69476
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter # 04

Labour Costing
LO1: INTRODUCTION TO LABOUR COST AND COST CONTROL
Labour cost is one of the important elements of the cost of production after material cost. Labour
costs constitute a major portion of the total cost of a product or service that may take the form of
wages, salaries and/or other incentives of employee remunerations.
Direct and Indirect Labour
 One of the most important distinctions of labour is between direct and indirect costs.
 Direct labour costs make up part of the prime cost of a product and include the basic pay of direct
workers.
 Direct workers are those employees who are directly involved in producing the output of the
business.
 Indirect labour costs make up part of the overheads (indirect costs) and include the basic pay of
indirect workers.
 Indirect workers are those employees who are not directly involved in producing the output of the
business, (for example, maintenance staff, factory supervisors and canteen staff).
Calculating labour in products and services

Determining time spent


Methods for recording the length of time an employee spends working can include:
 time sheets.
 time cards.
 job sheets.
 Time records.

It is essential that organisations employ relevant methods in both manufacturing and service industries to relate the
labour costs incurred to the work done. One of the ways in which this can be done is to make records of the time spent
by employees doing jobs.
Time recording is required both for payment purposes and also for determining the costs to be charged to specific
jobs.
In many manufacturing industries both direct and indirect workers will be supplied with an attendance record on
which they record their time of arrival and departure from the factory. Such records are known as time cards (gate or
clockcards) and are used to calculate wages and rates of pay.
Plastic ‘swipe’ cards directly linked to a central computer can also be used.
Activity time records
Another method of relating work done to costs incurred is by the use of activity time
records. Activity time records may be either period related or task related.
Period-related timesheets are commonly used in service industries, for example in
accountancy firms where time spent working for different clients is analysed, often to the
nearest 15 minutes.
Period-related timesheets are records that may cover days, weeks or sometimes longer
periods.
Task-related activity time records are known as job sheets, operations charts or piecework
tickets. They are generally more accurate and reliable than time-related activity time
records, and are essential when incentive schemes are in use.
Payroll department
The payroll department is involved in carrying out functions that relate input labour costs to the work done.
Preparation of the payroll involves calculating gross wages from time and activity records.
The payroll department also calculates net wages after deductions from payroll.
The payroll department also carries out an analysis of direct wages, indirect wages, and cash required for
payment.

Measuring labour activity


It is important to differentiate between “production” and “productivity” while measuring labour activity.

 Production: Production refers to the quantity or volume of the output produced i.e. the total number of units
produced. Production therefore is a measure of quantity of work.
 Productivity: Productivity unlike production is a measure of efficiency with which the units have been
produced
STANDARD HOURS
Number of hours a worker would take in completing a given job under normal conditions. It is also called as:
Standard hours allowed/unit
Budgeted hours/unit

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