Labour is a major component of prime cost (along with direct materials and direct expenses). Labour costing focuses on measuring and controlling labour cost by ensuring:
Labour costing involves:
Objectives:
A good system prevents buddy punching, helps compute overtime accurately, and strengthens discipline.
Time booking supports job-wise wage allocation and analysis of idle time.
Idle time = time paid for but not worked.
Causes:
Treatment (basic):
Overtime premium is the extra amount paid above normal wages for overtime.
Causes:
Treatment (idea):
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Time keeping and time booking differ as follows:
Causes of idle time include machine breakdown, power failure, waiting for materials/tools, lack of instructions, and poor planning/supervision.
Treatment: normal idle time is treated as factory overhead (or included in labour rate). Abnormal idle time is charged separately to Costing Profit & Loss account.
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense.
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Labour is a major component of prime cost (along with direct materials and direct expenses). Labour costing focuses on measuring and controlling labour cost by ensuring:
Labour costing involves:
Objectives:
A good system prevents buddy punching, helps compute overtime accurately, and strengthens discipline.
Time booking supports job-wise wage allocation and analysis of idle time.
Idle time = time paid for but not worked.
Causes:
Treatment (basic):
Overtime premium is the extra amount paid above normal wages for overtime.
Causes:
Treatment (idea):
Let:
Halsey plan (50% sharing commonly):
Rowan plan:
Standard time = 10 hours, time taken = 8 hours, rate = ₹50/hour.
Halsey (50%):
Rowan:
Observation: Rowan gives higher bonus when time saved is moderate relative to standard.
Labour turnover means the rate of change in the labour force due to separations and replacements.
Causes:
Remedies:
Let Average number of employees =
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Let S = standard time, T = time taken, R = hourly rate.
Halsey (50% sharing):
Rowan:
Given: S=10, T=8, R=₹50 Time wages = 8×50 = ₹400
Halsey bonus = 0.5×(2)×50 = ₹50 → Earnings = 400 + 50 = ₹450 Rowan bonus = (2/10)×8×50 = ₹80 → Earnings = 400 + 80 = ₹480
Thus, Rowan gives higher earnings in this case.
