What is Labour costs requiring special treatment?Holiday and vacation pay
Idle time
When the workers do not perform the work but skill they are to be paid the wages, such time is called the idle time. Idle is the difficult between the time for which they are actually pad and t
The idle time can be divided into two types as given below:
a. Normal idle time: the idle time that is caused due to the normal causes like the nature of production, available of raw materials and production process is called the normal idle time. The following are some of the example of normal idle time.
• The time between the factory gate and normal idle time.
• The waiting time before the work is started.
• The waiting time before the machine get started.
• The time between the two works.
• The idle time caused due to maintenance of machinery.
• For the fulfillment of personal needs like tea taking, toileting etc.
b. Abnormal idle time: the idle time that is the result of some abnormal situations is called the abnormal idle time. Such idle time is not the output of the production process. These types of idle time emerge due to the following reasons.
• A very long maintenance of the machinery.
• Strike and lockout by workers.
• No supply of electricity, water etc.
• No supply of raw materials.
• No availability of tools and equipment as required.
• No time instruction by the supervisors to the workers.
Accounting for Idle Time
The accounting of the normal and abnormal idle time are maintained differently.
a. Accounting for normal idle time: the way of maintaining the record of normal idle time is mentioned below:
Accounting for Idle Time
The accounting of the normal and abnormal idle time are maintained differently.
a. Accounting for normal idle time: the way of maintaining the record of normal idle time is mentioned below:
b. Accounting for abnormal idle time: the wages paid for the abnormal idle time is regarded as abnormal loss and debited to profit and loss account.
Control of idle time
• Development of proper production plan.
• Regular checking of the sources of water, electricity, fuels etc.
• Effective use of the idle time card.
• Cordial relationship with the suppliers and repair and antennae department.
Overtime
= normal time x normal rate + overtime x overtime rate
Treatment of overtime wages
Control of idle time
Generally, effective supervision and direction help to reduce the normal idle time. To control the abnormal idle time. Proper attention has to be paid for material, equipment and fuel/power. The following are some of the measure that can be taken for control the idle time.
• Discourage the tendencies of waiting time through effective supervision and direction.• Development of proper production plan.
• Regular checking of the sources of water, electricity, fuels etc.
• Effective use of the idle time card.
• Cordial relationship with the suppliers and repair and antennae department.
Overtime
Over and above the normal working hours, if a worker spends more time on the job it is generally know as overtime. For example, in a factory the workers are required to work for 8 hours a day but if a worker is asked to work 10 hours a day, the time of two hours will be treated as overtime. In Nepal, if a worker works more than 9 hours in a or for more than 48 hours in a week, he is tread to be engaged in overtime. The wages rate of overtime work to be paid is double to a worker of his basis hourly rate. The overtime labour costs are treated as part of direct wages or indirect wages depending upon the nature of labour, i.e. direct or indirect.
Total wages = normal wages + overtime wages= normal time x normal rate + overtime x overtime rate
Treatment of overtime wages
As pointed out, overtime is generally paid at a higher rate than the normal time. The overtime wages consist of normal wages ' and' overtime premium'. The normal wages from the part of the direct wages, but the overtime failure premium should be treated in the following manner.
i. Where the overtime work become necessary to complete a job within a specified date as required by the customer, the overtime premium or overtime cost should be directly charged to the job concerned by way of direct wages.
ii. Where the overtime work become necessary as a result of general pressure of work, the overtime premium should be treated as an item of overheads.
iii. Where the overtime work becomes necessary on account of fault planning in a department, the overtime premium or cost should be treated as an item of department overheads.
iv. Where overtime work is due to abnormal causes, i.e., flood, fire etc., the overtime cost should be charged to the costing profit and loss account.
Holiday and vacation pay
Employees are entailed for some holidays and vacations in almost all organizations. The period of vocations and holidays will out be in a particular proportion to production labour all to time. For this reason, vocation and holiday pay calls for special accounting treatment. Payment, which will be due to an employee during vacations and holidays, is conspired as overtime. It is spread over the production for the whole year, no single part of a particular period should carry undue budge on this holiday per should to the job directly.
Fringe benefits
Fringe benefits are service and financial compensation given to employees but not directly related to employees' performance. Fringes items involve added labour cost to the employer but are not direct wage payments to employees. Fringes benefits included the following:
Accounting treatment of fringes Benefits
There are three methods of accounting of fringes benefits:
a. Treatment as manufacturing overheads.
b. Treatment as a separate class of overheads.
c. Part of basis wages of the employees.
The use of first method (treating these costs like other manufacturing cost items) has the advantages of simplicity, but the disadvantage of hiding these costs under the maze of other manufacturing overhead items. If a rate other than direct labour cost is used for allocation of fringe benefit cost, it may distort production cost. T rating fringes benefits cost as a separate class of overheads required additional efforts but will result in more accurate costing of products and services.
Treating fringes benefits cost as additional to the basis wage is the most accurate method of charging these costs to production. This method correctly charges to production the cost of keeping employees including fringe benefits costs.
Profit sharing
The profit sharing schemes of remuneration are gaining much popularity these days. In additional to the wages, which the workers usually receive, a share is given to the workers in the profits of the firm. This enable the workers to work with tartar interest and enthusiasms in the factory because there is a relation between their work and higher production leading to higher profits to the management, which in turn shall bring a greater share to them to them as additional remuneration. Workers these days also put their claim for a scheme of profit sharing as they are conscious of the fact that on account of their efforts, the production is increased and the reward of increase output goes entirely to the pockets of management.
Workers' share in the net profit of the f firm can be calculated on any of the following basis:
i. A fixed percentage of yearly net profits of the firm may be allowed to workers employed in the factory at the end of the accounting year. Interest on capital and the transfer to general and other reserves can be provided out of net profits before this percentage.
ii. The profit earned by the factory may be calculated department-wise and the workers working in a particular department may be given a fixed percentages share in the profit earned by that department.
iii. Profit may be computed per unit of output and a part of profit may be allowed to workers on this basis.
Advantages of profit sharing
The advantages of profit sharing are:
i. Increase in production due to more efforts of workers,
ii. Low labour turnover,
iii. Higher moral of the workers resulting in less employer-employee comfits,
iv. Greater care in us of tools and equipment,
v. Better team work and greater co-operation,
vi. Better efficiency,
vii. A general increase in welfare of society as a whole.
Accounting treatment of profit sharing
Strictly speaking profit-sharing mans appropriation of profit and therefore such amount should be excluded from cost accounts. However, in Nepal, the extra amount of profit-sharing may mean payment of statures bonus i.e., 10% of net profit to works (under the payment of Bonus Act). In such a case it can be dealt in three ways in cost accounts:
i. The minimum bonus payable to the indirect worked under the payment of bonus act may be treated as an item of overhead. However, the extra amount given in excess of he statuary minimum be excluded from cost accounts because this is an appropriation of profits.
ii. The statuary minimum bonus payable to direct workers may be taken as a direct charge by suitable inflating him wages rate. Any amount in excess of the minimum bonus to direct workers may be taken as a production overhead.
iii. The amount of minimum statutory bonus payable next year may be estimated in advance and the amount payable to direct workers may be taken as a taken as a charge by inflating the wages rate. The rest of the amount (i.e., payable to indirect workers) may be taken as overhead. The difference between the amount actual paid and estimated amount be adjusted into overheads. However, bonus over and above the minimum bonus be excluded from cost account in respect of all direct as well as indirect workers.
The whole amount of bonus may be taken as overhead.
1. Write any three merits and demerits of place wages systems.
The main advantages of piece rate system are as follows:
a. Simplicity: it is a simple to operate and easy to understand.
b. Incentive to workers: This system provides an incentive to the workers to work hard as the wages are paid on the basis of quantity of output not on the basis of time.
c. Ascertainment of accurate labour cost: since the wages are paid on the basis of output, the exact cost of labour per unit of output can be ascertained.
This system has the following disadvantages:
i. Less attention to quality: as the payment of wages is made on the basis of output, the workers, in order to maximum their output, work with a sense of hurry, which may affect the quality of the output adversely.
ii. Inefficient use of machine and materials: since the wages are paid on the basis of quantity of output, an excessive wastage of materials and frequent breakdown of machine may be causes by the workers due to their efforts to obtain maximum output.
iii. No grantee of minimum wages: since there is direct relationship between quantity of output and wages, the workers suffer of they fall to work efficiently. There is no guarantee of minimum daily wages to workers.
2. Write any three merits and demerits of time wage system.
A time wages system has the following advantages:
A. Simplicity: it is very easy to understand and simple to calculate the earnings' of worker under this method.
B. Guarantee of minimum workers: it guarantees a minimum wages to the workers.
C. Quality production: since the amount of wages is not linked with the quality of output, this method ensures production of better quality due to the careful attention of the workers. This time wage system has the following disadvantages:
i. No incentive to the efficient workers: this system lacks incentive to efficient workers since all workers are paid equally and no dictions are made between efficient and inefficient workers.
ii. Go-slow policy: The worker, in order to earn higher wages for overtime work, may try to perform the work slowly which leads to increase in labour cost per unit.
iii. Dissatisfaction among the efficient works: the efficient workers are paid wages at the rate equal to these payable to insufficient workers. Which creates dissatisfaction among the efficient workers?
3. Mention the essential features of goods wages systems
The features of a good system of wages payment are mentioned below:
a. Suitable for both employer and employees
b. Simple to understand and easy to apply
c. Economical system
d. Guarantee minimum wages
e. Assure the equal wages for simple job.
f. Encourage the competent workers.
g. Accepted the competent workers.
h. In accordance with the low of country.
i. Flexible.
4. What is meant by preventive and replacement cost of labour turnover? How are they treated?
Preventive costs denote the costs, which are incurred to prevent excessive labour turnover by keeping a satisfied labour force. These are the costs which are incurred in order to keep the worker satisfied and thus to act as a discouragement against leaving employment.
Replacement costs refer to the costs of the recruitment, training and absorption of new workers.
Preventive costs should be charged as a works overhead item and apportioned to different departments on the basis of number of workers engaged in each department. Replacement cost should also be treated on the same basis if they arise on account of short sighted policy of the management. However, if they arise on account of the fault of it particular department, they should be change directly to that department.
5. Give any four examples of preventive cost and replacement cost.
Preventive costs:
• Cost of personnel administration.
• Cost of medical services.
• Cost of welfare activities.
• Cost of gratuity and pension schemes.
Replacement costs:
• Cost of recruitment end training of new workers.
• Loss of output due to interruption and inefficiency of new workers.
• Cost of wastage, scrap and defective work.
• Compensation due to frequent accidents.
6. What do you mean by idle time? How it is treated?
When the workers do not perform the work but still they are to be paid the wages, such time is called the idle time. Idle time is the difference between the times for which they are actually paid the time they actually work. For example, it is workers is hours only, the difference of 1 hour is termed as idle time. Idle time arises due to the shortage of material, breakdown of machinery, strikes etc. the ways of treating the idle time are mentioned below:
First method (Assume as Direct Labour)
A separate record is not maintained rather the rate of wages is increased. For example, a worker gets Rs 120 by workers for 8 hours in a day. If he works for 6 hours only, the idle time is 2 hours, now the previous rate i.e. Rs 120÷ 6= Rs 20 and the records is maintained accordingly.
Second method (Assume factory Examples)
Under this, the wages for the production time is regarded as direct wages and the wages paid for the idle time is regulated as factory expenses. For example, a worker get Rs120 per day for 8 hours i.e. Rs120 ÷ 8 = Rs 15 per hour. Now, 6 x Rs15= Rs90 is regarded as direct wages and 2xRs 15 = Rs30 is regarded as factory expenses.
The main advantages of piece rate system are as follows:
a. Simplicity: it is a simple to operate and easy to understand.
b. Incentive to workers: This system provides an incentive to the workers to work hard as the wages are paid on the basis of quantity of output not on the basis of time.
c. Ascertainment of accurate labour cost: since the wages are paid on the basis of output, the exact cost of labour per unit of output can be ascertained.
This system has the following disadvantages:
i. Less attention to quality: as the payment of wages is made on the basis of output, the workers, in order to maximum their output, work with a sense of hurry, which may affect the quality of the output adversely.
ii. Inefficient use of machine and materials: since the wages are paid on the basis of quantity of output, an excessive wastage of materials and frequent breakdown of machine may be causes by the workers due to their efforts to obtain maximum output.
iii. No grantee of minimum wages: since there is direct relationship between quantity of output and wages, the workers suffer of they fall to work efficiently. There is no guarantee of minimum daily wages to workers.
2. Write any three merits and demerits of time wage system.
A time wages system has the following advantages:
A. Simplicity: it is very easy to understand and simple to calculate the earnings' of worker under this method.
B. Guarantee of minimum workers: it guarantees a minimum wages to the workers.
C. Quality production: since the amount of wages is not linked with the quality of output, this method ensures production of better quality due to the careful attention of the workers. This time wage system has the following disadvantages:
i. No incentive to the efficient workers: this system lacks incentive to efficient workers since all workers are paid equally and no dictions are made between efficient and inefficient workers.
ii. Go-slow policy: The worker, in order to earn higher wages for overtime work, may try to perform the work slowly which leads to increase in labour cost per unit.
iii. Dissatisfaction among the efficient works: the efficient workers are paid wages at the rate equal to these payable to insufficient workers. Which creates dissatisfaction among the efficient workers?
3. Mention the essential features of goods wages systems
The features of a good system of wages payment are mentioned below:
a. Suitable for both employer and employees
b. Simple to understand and easy to apply
c. Economical system
d. Guarantee minimum wages
e. Assure the equal wages for simple job.
f. Encourage the competent workers.
g. Accepted the competent workers.
h. In accordance with the low of country.
i. Flexible.
4. What is meant by preventive and replacement cost of labour turnover? How are they treated?
Preventive costs denote the costs, which are incurred to prevent excessive labour turnover by keeping a satisfied labour force. These are the costs which are incurred in order to keep the worker satisfied and thus to act as a discouragement against leaving employment.
Replacement costs refer to the costs of the recruitment, training and absorption of new workers.
Preventive costs should be charged as a works overhead item and apportioned to different departments on the basis of number of workers engaged in each department. Replacement cost should also be treated on the same basis if they arise on account of short sighted policy of the management. However, if they arise on account of the fault of it particular department, they should be change directly to that department.
5. Give any four examples of preventive cost and replacement cost.
Preventive costs:
• Cost of personnel administration.
• Cost of medical services.
• Cost of welfare activities.
• Cost of gratuity and pension schemes.
Replacement costs:
• Cost of recruitment end training of new workers.
• Loss of output due to interruption and inefficiency of new workers.
• Cost of wastage, scrap and defective work.
• Compensation due to frequent accidents.
6. What do you mean by idle time? How it is treated?
When the workers do not perform the work but still they are to be paid the wages, such time is called the idle time. Idle time is the difference between the times for which they are actually paid the time they actually work. For example, it is workers is hours only, the difference of 1 hour is termed as idle time. Idle time arises due to the shortage of material, breakdown of machinery, strikes etc. the ways of treating the idle time are mentioned below:
First method (Assume as Direct Labour)
A separate record is not maintained rather the rate of wages is increased. For example, a worker gets Rs 120 by workers for 8 hours in a day. If he works for 6 hours only, the idle time is 2 hours, now the previous rate i.e. Rs 120÷ 6= Rs 20 and the records is maintained accordingly.
Second method (Assume factory Examples)
Under this, the wages for the production time is regarded as direct wages and the wages paid for the idle time is regulated as factory expenses. For example, a worker get Rs120 per day for 8 hours i.e. Rs120 ÷ 8 = Rs 15 per hour. Now, 6 x Rs15= Rs90 is regarded as direct wages and 2xRs 15 = Rs30 is regarded as factory expenses.
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