Labour Costing
Labour Cost:
• Labour costs consist of wages paid to workers and other payments and benefits which they get during the course of their employment.
• These cover the following:
– Monetary or pecuniary benefits
– Deferred monetary benefits
– Fringe benefits or non-monetary benefits
• The total labour cost can be classified in two categories.
– Direct labour costs
– Indirect labour costs
Classification of Labour Costs:
• Direct Labour Cost
– The cost of remuneration for employees’ efforts and skills applied directly to a product or saleable service’ and indirect labour cost as ‘the wages cost other than the direct wages.
– It is the cost or remuneration of employees whose efforts and skills are applied directly to a product or a service. It is significant in amount, and can be calculated easily.
• Indirect Labour Cost
– It is the cost or remuneration of the employees whose efforts and skills are not directly applied to a product or service.
– Salaries and wages paid to inspectors, foreman, maintenance staff, purchase assistants, security staff, stores and offices, etc. are examples of indirect labor cost.
– Idle time, waiting time, machine repairing time, etc., of direct workers shall be treated as indirect labour.
Labor Cost Records:
• Labor cost ascertainment and control can be done by implementation of the following processes:
– Recruitment of employees as per requirement
– Timekeeping or recording
– Allocating labour cost to a product or job
– Maintenance of employee’s job record
• The departments involved are:
– Personnel
– Engineering
– Timekeeping
– Accounting
Methods of Remuneration:
• Time – Rate System or Flat Time-Rate System
Earning = Hours worked X Rate per Hour
• Piece – Rate System
Earning = Number of Units Produced X Rate per Unit
• Incentive Wages Plan
– Halsey Plan
– Halsey Weir Plan
– Rowan Plan
– Taylor’s Differential Piece Wage System
– Merrick Differential Piece-Rate System
Payment Of Wages:
• Payrolls indicating, name, numbers of worker, basic pay, plus other allowances less deduction and net wages payable for the period (normally a week) are prepared.
• A cheque is drawn for total wages of all worker and encashed.
• While encashing, it the notes and coins are demanded from bank in required denomination for payment to individual worker.
• Department wise envelops are prepared in respect of each worker.
• Name and Net amount payable are written on each envelope.
• A copy of pay slip is attached. Cash (as per pay slip) is put into envelope.
• Workers are given pay slip and asked to sign on revenue stamp as the receipt, asked him to count cash and then go.
ICSI
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