Cost & management Accounting

Labour :Time Rate -piece rate, Incentives meaning importance Taylor Differential piece rate-Halsey & rowan plans.Labour turnover meaning causes -effects-methods

1. Cost and Management Accounting Unit 2 Prepared by Jissy.C Assistant Professor Department of commerce(IB)

2. LABOUR COST Labour cost is one of the factors of production. It represents the human contribution to production. Classification of labour cost Direct labour cost Indirect labour cost Labour cost control Personal Department Time recording Dept Pay roll Dept Engineering Dept Cost Accounting Dept

3. TIME KEEPING AND TIME BOOKING Time keeping Time Keeping involves recording the arrival &Departure time of employees in factory. It records the incoming &outgoing time of employees in a factory Methods of Time keeping Manual Methods: Attendance Register Token method Mechanical Methods: Dial Time recorder Card Time Recorder Autograph or Signature type time recorder TIME BOOKING It Denotes the process of recording the time spent by each worker on various jobs in a factory .It involves the recording of the starting time & finishing time of employees on a job

4. Methods of Time Booking Daily Time Sheet Weekly Time sheet Job card Combined time &job Card Labour cost card Piece work Card MOTION AND TIME STUDIES Motion study consists of dividing the work into the most fundamental elements separately and in relation to one another : and from those studied elements when times,building methods of least waste.

5. TIME STUDY Time study is a defined as observing, recording, &analyzing the time required to perform each detailed element of an operation JOB EVALUTION It represents an effort to determine the relative value of every job in a plan & to determine what the fair wage for such a job should be Steps in a job evaluation Programme Step:1 Selection of the factors common to all jobs:-Skills, Efforts, Responsibilities, Job Conditions Step :2 Clear cut definition of the factors Step:3 Selection of a suitable rating method:- Ranking method, Job Classification ,Point Method, Factor comparison method

6. PERFORMANCE APPRASIAL or MERIT RATING A systematic, period & so far as humanly possible ,an impartial rating of an employee excellence in matters pertaining to his present job & to his potentialities for a better job Methods of Merit Rating. 1.Rating Scales 2.Employee Comparison System 3.Check Lists Rating System 4.Critical Incident Technique 5.Other methods

7. CASUAL WORKERS Casual workers refer to those who are not on pay-roll of the factory but are engaged casually where there is extra load in the factory. IDLE TIME Idle time is that time for which payment made but no direct production /benefit is obtained .The question of idle time arises only when the payment is made on the time basis Idle Time=Time Recorded as per Time card-Time Booked on job as per job card.

8. Calculation of normal & Abnormal IDLE Time Particulars Hours Hours as per time 24 Less : Normal Idle time [20 minutes /1 day X 6 Days] 2 EFFECTIVE NORMAL HOURS 22 Less: Hours booked to jobs 18 ABNORMAL IDLE TIME 4 Total Labour cost =24 hours X 20 per hour=480

9. Statement showing the allocation of wages Particulars Hours To jobs(Cost of hours booked to jobs 18hrs X Rs 20) 360 To Factory O/H (Cost of normal Idle time (2Hrs X20) 40 To costing P/L (Cost of abnormal idle time 4 hrs X 20) 80 Total Wages(24 Hrs X Rs 20) 480

10. Calculation of normal & Abnormal IDLE Time Total wages payable to the worker for the week =42 hrs X1 =42 Workers Wages are to be dealt with in the cost accounts as follows Hours Wages debited to job No 5(20X 1) 20 Wages debited to job No 5(10X 1) 10 Wages debited to job No 5(8 X1) 8 Wages approved absence for 6days @ 15 minutes per day taken as normal idle time to be covered as factory o/H (1/60 X 90) 1.50 Calculation of time saved :42 Hrs – (20+10+8+1.50 =2.5 hrs) Wages for time wasted due to power failure taken as abnormal loss transferred to costing P/L Account(2.5 hrs X 1) 2.50 TOTAL WAGES 42

11. OVER TIME Over time refers to an extra time over & above the normal working hours. 1.Calculate wages due to a worker from the following data Normal hrs in a week 44 hrs Actual Hrs booked 50 hrs Rate per hour Normal rate 1.25 overtime 200% of normal data Solution: Direct wages (44 hrs X 1.25) =55 Overtime wages(50-44 = 6hrs X2.50) =15 Total wages =70

12. Statement showing Calculation of Normal Time & overtime for Option 1 Day Actul hrs Worked Normal Hrs NromalWage @ Rs1 per hrs Over @single rate Time hrs @ Double rate Over time wages Monday 8 8 8 - - - Tuesday 9 8 8 1 - 1 Wednesay 10 8 8 1 1 3 Thursday 11 8 8 1 2 5 Friday 10 8 8 1 1 3 Saturday 8 8 8 - - - Total 56 48 48 4 4 12

13. Statement showing calculation of normal & OT wages for Option 2 Normal wages (48 Hrs X Rs1) =48 OT wages(56-48= 8 hrs X 2 hrs =16 Total wages =64 Option I Total Wages=(48+12)=60 Option II Total wages=(48 +16)=64

14. Solution: 1)Separation rate Method=No of separations /Average no.of.workers X100 =250+50/(1500+2500)/2 X100 =300/2000 X100 = 15% 2)Replacement method = No.of.Replacement / Average no.of.workers X100 =200/2000 X100 = 10% 3)Flux Method= ( No.of sperations + No .of. Replacements)/ Average no.of.workers X 100 300+200/2000 X 100 = 25%

15. Solution: 1)Separation rate Method=No of separations /Average no.of.workers X100 =5+20/(500+600)/2 X100 =25/550X100 = 4.545% 2)Replacement method = No.of.Replacement / Average no.of.workers X100 =10/(500+600) /2 X100 = 1.82% 3)Flux Method= ( No.of sperations + No .of. Replacements)/ Average no.of.workers X 100 5 +20+75 (500+600)/ 2 X100 =100/550 X100 =18.18%

16. (f) Expenditure on amenities to labour Rs200 per head per mensem (g)Number of working days in a month 25 days of 8 hrs each.

17. Statement showing the labour cost per man-day of 8 hrs Particulars Amt per month(25 days ) Rate per man-day of 8 hrs f)Expenditure on amenities Rs 200 per head 200 8 a)Basic salary (25 @20) 500 20 e)Employer contribution to state insurance 2.5% of 2200 55 2.20 b)Dearness allowance(600 X2.50) 1500 60 c)Leave salary10% Rs(2000) 200 8 d)Employer contribution to PF 8% of 2200 176 7.04 Total labour cost 2631 105.24

18. Statement showing the labour cost per man-day of 8 hrs Particulars Amt per month(25 days ) f)Expenditure on amenities Rs 1000/25 40 a)Basic salary 40 e)Employer contribution to ESI 2% of 176) 3.52 b)Dearness allowance5 X600)/25 120 c)Leave salary10% Rs(160) 16 d)Employer contribution to PF 8% of 176 14.08 Labour cost per man –days of 8 hours 233.60

19. REMUERATION & INCENTIVE Labourers are remunerated for the work done by them in a factory on certain basis. The remuneration payable to them is known as wages

20. Time rate system Under time rate system ,Labourers are paid for the time worked by them. Here the quantum of production is not considered for wage payment Formula, Wages= Actual time worked X Time rate Piece Rate System It is adopted where increased quantum of production is described. Wages= Number of units produced X Piece rate per unit

21. Solution a) Calculation of wages on Time basis: Time wages = No. of hrs worked X Rate per hour = 8 hours X Rs 4 =Rs 32 b)Calculation of wages on Piece Basis: Normal Rate per hour=4 Adjusted rate at 25% increase ie at 125 % =4 X 125%=Rs 5 Piece rate=Rs 5/50units =Rs0.10/- Piece rate= No.of.Units Produced X Rate Per Unit =395 X 0.10 =39.50/-

22. Taylor's Differential Piece Rate system It is based on the assumption that the degree of efficiency varies from worker to worker & hence the workers must be paid according to their degree of efficiency. Features of Taylor Differential Piece rate system Two Piece rates are fixed: i )Lower rate ie,80% of normal piece rate for the worker who produces below the standard output Formula Wages at low Piece rate =Actual output X (Normal Piece rate X 80%) ii)Higher rate 120% of normal piece rate for the worker who produces below the standard output or more than the standard Formula wages at higher Piece rate =Actual output X (Normal Piece rate X 120%)

23. Calculation of level of performance of workers: Standard Production per 30 seconds = 1 units Standard production per minute=1/30 X 60=2 units Standard production per hour = 2 units per minute X 60 minutes=120 units Standard production per Day of 8 hours =120 units per hour X 8 hours =960 units Worker A who Produced 1000 units per day is above standard Worker B who Produced 1000 units per day is above standard Calculation of Piece Rate: Standard Rate per hour =Rs2.40 Standard Output per hour =120 units Straight Piece rate =2.40/120=Rs0.02

24. Low piece rate below standard Production=Straight Piece rate X lower Piece rate =0.02 X 80% =Rs0.016 High Piece rate for High Standard Production =Straight Piece rate X Higher Piece rate =0.02 X 120% =Rs0.024 Calculation of earning of workers under Taylor Differential Piece Rate System : Worker A who is above standard will get Rs 0.024 per unit & Worker B who is Below Standard will get Rs 0.016 per unit ,Therefore their earning would b as follows: Earnings= Production of worker X Differential Piece rate Worker A=1000 units X 0.024 = Rs24 Worker B = 900 units X 0.016 =14.40

25. Incentive System of Wage Payment The term Incentive has been defined as “The stimulation of effort & effectiveness by offering monetary Inducement. HALSEY PLAN In this system ,Standard time is decided on the basis of past experience and the worker is paid the agreed rate per hour for the time spent thereon plus a Fixed percentage (Normally 50%) of the time , he saved on the standard. Earnings =T X R +(50% of S) X R Time =Time taken R = Hourly Rate S= Standard Time

26. Calculate wages under Halsey System from the following particulars Time Allowed -16 hours, Time Taken – 10 Hours , Time rate –Rs 2 Per hour Solution Earnings =T X R +(50% of S) X R =10 X 2 +(50% X6*) X 2 =20 +6 = 26 *Calculation of time saved=Timed Allowed –Time taken =16 hours- 10 hours= 6 hours

27. ROWANPLAN Under this system bonus hours are calculated as a proportion of the time taken ,which the time saved bears to the time allowed ,& they are paid on the basis of the time rate system. Earnings under rowan plan system=Time Taken X Time Rate +(Time saved /Standard Time X Time taken ) X Time Rate.(OR) T X R +( s-T x T ) X R) s Q1.Using the following data, Calculate the wages payable to a workman under the Rowan premium Bonus Plan: Time Allowed :-40 Hours, Time Taken :- 32 Hours, Rate Per Hour :- Rs 5 Solution =32 X 5 +(8/40 X32) X5 =160 +32=192

28. Q2.Set out a Comparative statement showing the effect of paying wages on 1)Halsey Plan&2)Rowan Plan Standard Time: 10 hours Hourly Wage Rate: Rs5 Time Taken:8 Hours Overhead rate per hour: Rs 6 Solution Calculation of wages: Halsey Plan Wages under Halsey Plan = T X R +(50%X(s-T) X R) =8 X 5 + (50% X(10-8) X 5) =40 +50% X( 10-8) x 5 =40 + 5 =45 Rowan Plan T X R +( s-T x T ) X R) s =8 X 5 + (10-8/10) X8 X 5 =40 +8 =48

29. THANK YOU