what is a wages payment of systems? and methods of wages payment
What is a Systems of wages payment?Meaning of systems of wages payment
The success of a concern largely depends upon the efficiency of labour and the efficiency of labour is considerably affected by the amount of wages paid to them. Some personal are
Method or system of wages payment must possess the following characteristics:
• Should be simple to operate and easy to understand.
• Should guarantee a minimum wage to every worker.
• Should be acceptable to the employer and the employee.
• Should be flexible enough so the changes may be made according to the requirements.
• Should ensure the establishment of industrial peace.
The principle methods of wages payment are as follow:
1. Time rate system
2. Piece rate system
3. Incentive wage system (payout plan)
Piece rate system
In this method, wages are paid to the employees after completion of work. Under it, a worker is paid on the basis of output. Not the time by him to perform the work. This is one of the simplest and most commonly used systems of wages payment. In this system, the wage rate is expressed in terms of per unit of output, per job or per work-order. This amount of wages payable to a workman under this method is to be calculated as follows:
Total wages = total output x wages rate per unit of output
=output units x unit rate
=actual yield x unit or piece rate
This system is suitable in the following cases:
• Where a work is of a repetitive natures.
• Where the measurement of work is simple.
• Where the quality and accuracy of output is not very important.
• Where strict supervision is not possible.
Advantages of piece rate system
The main advantages of piece rate systems are as follows:
a. Simplicity: just like time rate system, the piece rate system is also simple to operate and easy to understand. It does not involve tedious calculations.
b. Incentive to workers: This system provides an increase to the workers to work hard as the wages are paid on the basis of quantity of output not on the basis of time. So efforts and rewards are correlated.
c. Ascertainment of accurate labor cost: since the wages are paid on the basis of output, the exact cost of labour per unit of output or job can be considerable.
d. No payment for idle time: under piece rate system, any payment is made to the workers for the idle time as a result of which the cost of supervision is not considerable.
e. Proper care and use of machine and tools: the workers rake proper care of their machine and tools since breakdown of machine and tools means decrease in output resulting in less remuneration to them.
Disadvantages of piece rate system
This system has the following disadvantages:
a. Less attention to quality: as the payment of wages is made on the basis of output, the workers, in order to maximize their output, work with sense of hurry, which may affect the quality of the output adversely.
b. Inefficient use of machine and materials: since the wages are paid on the basis of quantity of output, an excursive wastage of materials and frequent breakdown of machinery may be caused by the workers due to their efforts to obtain maximum output.
c. No guarantee of minimum wages: since there is direct relationship between quality of output and wages, the workers suffer if they fail to work efficiently. There is no guarantee of minimum daily wages o workers.
d. Dissatisfaction among inefficient workers: the inefficient workers, who work slowly, become dissatisfied by reason of lower wages as compared to the wages paid to their efficient counterparts.
e. Adverse effect on worker's health: the worker may try to abnormally to earn more which has an adverse effect on their health and efficiency. So, this method is not accepted by trade union.
Under this system, the amount of remuneration or the total wages payable to the workers depends on the time for which he is employed. This is simple and common method of wages payment. In this method, the workman is paid an hourly, daily, monthly or yearly rate rat of wages.Read More..
Thus the worker is paid on the basis of time and not on his performance or unit of output. The amount of wages payable to a workman under this method is to be calculated as follows:
Total wages = actual time take x time rate
Or, total wages = total hours worked x wages rate per hour.
This method is suitable to be applied in the following circumstances:
• Where the quality of work is more important than production.
• Where the volume of production is not within the control of labour.
• Where it is difficult to fix the unit of output.
• When it is volume of production is not within the control of labour.
• The nature of work is such that there is no basis for incentive plan.
• Where the amount of output cannot be accurately measured, counted and standardized.
Advantages of time rate system
This method is widely used even at the present time on account of 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 wages: it guarantees a minimum wages to the workers.
c. Quality production: since this amount of wages is not linked with the quantity of output, this method ensures production of better quality due to the careful attention of the workers.
d. Unity among workers: under this method, all workers falling under a particular category are paid at equal rate without any consideration of their quantity of output. It encourages a feeling of equality among workers on account of which this method is also favored by trade unions.
e. Economical: it involves less clerical work and detailed records are not necessary. Since the output is not the criteria for determination of wages, tool and materials are handled carefully. Wastage are also minimized.
Disadvantages of time rate system
This method has the following disadvantages:
a. No incentive to the efficient workers: This system lacks incentive to efficient workers since all works are paid equally and no distinction is made between efficient and inefficient workers. So efforts and rewards are not correlated.
b. Go-slow policy: the workers, in order to earn higher wages for overtime work, may try to perform the worker slowly which leads to increase in labor cost per unit.
c. Dissatisfaction among the efficient workers: the efficient workers are paid wages at the rate equal to these payable ton inefficient workers, which creates dissatisfaction among the efficient workers.
d. Payment for idle time: under this method, idle time of the workers is also paid that increase the cost of production.
e. High cost of supervision: since there is no direct link between quantity of output and wages, wastage of time on the part of the workers is common, the avoidance of which requires considerable supervision leading to increase costs.
Advantages of time rate system
This method is widely used even at the present time on account of 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 wages: it guarantees a minimum wages to the workers.
c. Quality production: since this amount of wages is not linked with the quantity of output, this method ensures production of better quality due to the careful attention of the workers.
d. Unity among workers: under this method, all workers falling under a particular category are paid at equal rate without any consideration of their quantity of output. It encourages a feeling of equality among workers on account of which this method is also favored by trade unions.
e. Economical: it involves less clerical work and detailed records are not necessary. Since the output is not the criteria for determination of wages, tool and materials are handled carefully. Wastage are also minimized.
Disadvantages of time rate system
This method has the following disadvantages:
a. No incentive to the efficient workers: This system lacks incentive to efficient workers since all works are paid equally and no distinction is made between efficient and inefficient workers. So efforts and rewards are not correlated.
b. Go-slow policy: the workers, in order to earn higher wages for overtime work, may try to perform the worker slowly which leads to increase in labor cost per unit.
c. Dissatisfaction among the efficient workers: the efficient workers are paid wages at the rate equal to these payable ton inefficient workers, which creates dissatisfaction among the efficient workers.
d. Payment for idle time: under this method, idle time of the workers is also paid that increase the cost of production.
e. High cost of supervision: since there is no direct link between quantity of output and wages, wastage of time on the part of the workers is common, the avoidance of which requires considerable supervision leading to increase costs.
Incentive wages payment plan
To remove the defects of both time rate and piece rate systems of wages payment, incentive plans have been developed. Under these plans, the advantages of time and piece-wages system are combined, and incentives are provides to workers to work hard. The characteristics of these plans are as follows:
i. Incentives by way of bonus and other are given to efficient works for time saved.
ii. A standard time is fixed and the worker is to perform the given work within the standard time. The standard time is set after making time studies for the performance of specific job.
The incentive is compromise between the two extremities, on the one, if the workers are paid according to time, hey a nothing if time is saved and on the other hand, if they are paid on the basis of piece rate, employers get nothing, if time is saved. Under incentive plans, the employer as well as the workers shares the benefit of time saved, and both labour and overtime costs are reduced.
The incentive plans should be selected according to the nature of work and other circumstances. It should be accepted by the management as well as labour otherwise it does not function successfully. The payment of wages may be made according to any of the following plans:
i. Incentives by way of bonus and other are given to efficient works for time saved.
ii. A standard time is fixed and the worker is to perform the given work within the standard time. The standard time is set after making time studies for the performance of specific job.
The incentive is compromise between the two extremities, on the one, if the workers are paid according to time, hey a nothing if time is saved and on the other hand, if they are paid on the basis of piece rate, employers get nothing, if time is saved. Under incentive plans, the employer as well as the workers shares the benefit of time saved, and both labour and overtime costs are reduced.
The incentive plans should be selected according to the nature of work and other circumstances. It should be accepted by the management as well as labour otherwise it does not function successfully. The payment of wages may be made according to any of the following plans:
Individual bonus plan
According to individual bonus plan, the bonus of each worker is calculated separately. Some methods of calculating wages under individual bonus plan are discussed below:
a. Halsey premium plan
This plan was originated by F.A. Haley. Under this scheme, an hourly rate is guaranteed to all workers. A standard time is fixed unit, job or operation on the basis of time and mention studies and the worker is paid the agreed hourly rate of wages for the actual time taken plus a fixed percentages of bonus on the time saved. The amount of bonus or premium payable to the workers in one-half of the wages of the time saved.
Requirements for calculating total wages or total earning of the worker under. Halsey premium plan are:
ST = standard time or normal time allowed
TT = time taken
SR = standard time rate of wages
Time saved (TS = ST –TT
Advantages of Halsey premium plan
The advantages of Haley premium plan are mentioned below:
i. It is simple to understand and operate.
ii. Every worker is guaranteed minimum wages and even the inefficient worker feel secured.
iii. It encourages efficiency among worker by inducing them to finish their job before the standard time.
iv. The benefit from the time saved is shared equally by have employer and the workman.
v. Generally workers do not oppose this method of wages, payment as it rewarded time saved rather than increase output.
Disadvantages of Halsey premium plan
The disadvantages of Halsey premium plan are mentioned below:
i. Workers are paid only half of the wages on the time saved. So the worker may oppose this method.
ii. The worker may perform to work in hurry by neglecting the quality of output to save time and earn higher bonus.
iii. The standard time fixed for finished a job may not be scientific.
b. Rowan premium plan
This plan was originated by David rowan. This plan guarantees an hourly rate to all workers. A worker is paid the fixed rate per hour for the actual time spent on the job plus a premium or bonus based on the time saved. The amount of premium or bonus is not a fixed percentage of the wages of time saved but it various according to the extent of the time saved. The amount of bonus or premium payable under this plan depends on the percentage of time saved by the workers. The bonus is calculated the such percentage out of the basis wages.
Formula for to calculated total wages or total earning of the worker under, Rowan premium plan:
Basis wages = time taken x standard time rate = TT x SR
Bonus = time saved/ standard time
Total wages under rowan plan = basis wages = bonus = TT x SR = TS/SR
Effective wages rate under rowan plan = total wages/TT
Advantages of rowan premium plan
The advantages of rowan premium plan are mentioned below:
i. This plan guarantees minimum wages and provides incentive for efficiency.
ii. It does not induce to rush through work for increase bonus earning because the bonus increase at a decreasing rate with higher levels of efficiency. Thus, an automate check for limiting production of inferior quaintly of goods is ensured.
iii. The per unit fixed cost decrease with the increase in production
iv. The per unit fixed cost decrease with increase in production
v. Under this method, the per unit cost decrease due to decrease in per unit labour cost.
Disadvantages of Rowan premium plan
The disadvantages of Rowan premium plan are mentioned below:
i. As the bonus is to be shared by employees and employees, it is not welcomed by employees. They expect full benefit for their extra efficiency.
ii. The calculation earnings under this method is comparatively complicated and time consuming.
iii. The preparation of Lanzhou budget and estimated product labor cost are made difficult by the varying labor costs under this plan.
iv. Payment under this plan is much less than that under the Halsey plan by way of bonus below 50% of the time saved.
Why rowan plan is better than Halsey plan?
• In the Halsey plan, bonus is usually set at 50% of the time saved. It does not serve as a strong incentive. On the other hand under the Rowan plan, bonus is that proportion of the wages of the time taken which the time save bears to the standard time; it serves as a strong incentive for increasing the efficiency.
• In the Rowan plan, the quality of work is not affected much. The worker is not induced to rush through the work because bonus increases at a decreasing rate at higher levels of efficiency. In the Halsye plan. A worker is induced to rush through the because he get extra wages for every 50% of the time saved.
• The effective labour rate per hour in the Rowan plan is higher up to 50% of the time saved and falls there after whereas in the Halsey plan, the effective labor rate per hour up to 50% of the time saved and can be double thereafter. Usually, worker are not able to save more than 50% of the time allowed, so worker prefer the Rowan plan for earning more wages
c. Taylor's differential piece rate system
This scheme was originated by F.W. Taylor, who knows a the "father of science management". Taylor suggests that the worker producing the below standard level be paid according to the low piece rate. Similarly, the worker producing at or above standard should be paid according to high piece rate. For this, a standard time is fixed and the worker who finished the assigned work before the standard time or at standard are paid at a higher rate and the worker who cannot complete the task within the standard time are paid at a lower rate. This standard should be set up very accurately with the help of time and motion studies because it is the demarcating line for higher and lower and lower rates of wages. Thus, two piece-rates are fixed, one for those who perform the standard task in standard time (may be termed as efficient workers) and the other for those who perform less than the standard task in the standard rate time (may be termed as inefficient worker). Usually rates are 120% and 80% of the piecework rate for efficient and inefficient workers respectively.
Requirements for calculating total wages or earnings of the worker under Taylor's differential piece rate system:
Standard output/ standard yield:
Standard rate per unit/ normal piece rate = standard wage rate for a period/ standard yield for the period
Advantages of Taylor's Differential piece-rate system
The advantages of Taylor's differential piece-rate systems are mentioned below:
i. This system provides a great incentive to workers to achieve the standard output and the slow workers always try to achieve greater efficiency.
ii. The system is beneficial to workers as well as employers, since the workers get wages at an increased rate according to units produced and the employer get increased output at lower cost of production.
Disadvantages of Taylor's differential piece-rate system
The disadvantages of Taylor's differential piece-rate systems are mentioned below:
i. This system is different to apply due to the fixation of different rates.
ii. The standard output cannot be justified because if a worker just fails to reach the standard output, the low rate of wages will be given to him. However, if the just reaches the standard, higher rate of wages will be payable to him.
iii. There is a great difference of wages between the higher and lower rates. It creates a large variation in the earnings of the workers and confection may emerge among them.
iv. Moreover, employer-employees relations may also be stained; tankard is put at a very high level.
d. Gantt's task and Bonus Scheme
This scheme was originated by Mr. Gantt. This scheme is a combination of time rate, differential piece-rate and bonus system and guarantees a minimum time rate. Under this system, minimum wages are guaranteed to workers who fail to reach the standard. If the output of the worker is below standard, the worker is paid guaranteed time rate or equal to standard output. In this system, low rate is not necessary to determine total wages for below standard and if a worker's output is at or above standard, he is paid a high piece rate (output 120% of normal rate) for the actual output. The remuneration under this method is computed as follows:
Requirements for calculating total wages/earnings of the worker under Gantt's task bonus plan:
Standard output/standard yield
Standard rate per units/normal piece rate/guaranteed piece rate
High piece rate for at or above standard, generally=120% of normal piece rate
Advantages of Gantt's Task and bonus scheme
The advantages of Gantt's Task and Bonus Scheme are mentioned below:
i. This system encourages the worker to improve the level of performance.
ii. The workers feel that they are getting the reward, which they are entitled to. Thus, it promotes satisfactions among the employees.
iii. This method is very useful in jobs involving engineering activities.
Disadvantages of Gantt's Task and Bonus Scheme
The disadvantages of Gantt's Task and Bonus Scheme are mentioned below.
i. Extreme care is to be exercised in fixing the guaranteed time rate and determination of standard output. Any error caused due to lack of experience will lead to unfavorable consequences.
ii. If the guaranteed time rate is fixed high, the incentive effect of the plan will deteriorate.
Group Bonus Schemes/What is a Group Bonus Schemes?
In the premium plans discussed so far, the bonus payable to an individual was ascertained. Sometimes it is not possible to apply an incentive plan to an individual employees and it may be possible to apply such a plan to the group of employees only. The group bonus system is especial applicable when the worker act in a group as a term. The group incentive plans can be successfully implemented where:
i. Output depends on teamwork and joint efforts of group of workers.
ii. It is difficult to measure the individual result rather than group's result.
iii. It is necessary to work as a member of a team rather than on individual basis, e.g. in chemical process industry, an individual worker cannot influence the production of the plant.
iv. Both direct and indirect workers need to be compensated equally.
v. Skills of the workers in the group do not vary widely.
Advantages of Group Bonus Scheme
The advantages of Group Bonus Scheme are mentioned below:
i. Increase in production and saving in cost of production can be achieved.
ii. Supervision cost will be reduced substantially.
iii. The quality of work is improved.
iv. Absenteeism is reduced to minimum and creates interest in work among the workers.
v. Routing and scheduling problems are eliminated.
vi. It creates team spirit and reduces cost per unit.
vii. Minimizes waste and reduces cost per unit.
viii. Clerical work in calculation of bonus is reduced.
Disadvantages of Group Bonus Scheme
The disadvantages of Group Bonus Scheme are mentioned below:
i. Individual skill and efficiency are not considered in these systems.
ii. Difficult may arise in calculated of bonus and method of its distribution to all workers in the group.
iii. The bonus is paid on group efforts an individual worker may not put his maximum effort in view of equal sharing of bonus to inefficient workers.
iv. An inefficient leader may cause the entire group to suffer.
a. Priest man's plan
Under this system, standard output and standard time for each department is predetermined is consultation with the workers. Bonus is payable to the department when the actual production exceeds the standard production. When the production does not exceed standard, no bonus is paid but times rates are guaranteed. The bonus is calculated as a percentages on such excess production and distributed to all employees in that particular department by increasing their normal wages by the same percentages the actual production increased over the standard.
In this system, the time wages are guaranteed if actual production of the particular division, department, and group is less than the standard output. This method is not only applicable for excess of actual production over the standard but also saving in material and labour costs is also considered for payment of bonus. The main drawback in this system is the efficiency of individual worker is not considered and incident workers can also claim for-bonus.
1. Write/what is the meaning of labour cost.
Labor cost refers to any remuneration paid to the employees by the organization in the form of wages, salary, bonus, allowances etc. for their time and effort used in payable goods or services. In other words, mantel and physical sacrifice is called the labour cost.
The labour cost can be analyses into the following:
Monetary benefits: salaries and wages, dearness or other allowances, production incentive or bonus, overtime allowances, pension fund, payment for insurance scheme, old age pension, retirement gratuity, salary in lien of leave, profit linked bonus etc are the benefit that are provided to the workers in monetary forms.
Non-monetary benefit or fringe benefits: subsidized food and housing, subsidized or free transportation, clothing, education to employee's c hidden, medical and recreational facilities etc. are the benefit that are provided to the workers in non-monetary forms.
2. Write about direct and indirect labor cost.
The labour cost can be classified into direct and indirect and indirect labour cost as mentioned below:
a. Direct labour cost: direct labour cost is that portion of wages and salary, which can be identified and charged to a single costing unit. It is remuneration of the employees who are direct unit. It is the remuneration of the employees who are directly connected with the manufacturing operations or the conversion of raw materials into finished products. The example of direct labour cost is wages paid to workmen put on definite jobs or products in the factory.
b. Indirect labour cost: indirect labour cost is the remuneration of the employees who are not directly connected with manufacturing with the conversion process but assist in the process by way of supervision, maintenance, transportation of materials, materials handling etc. their work benefits all the items being produced and cannot be specifically identified with the individual product. These costs are accumulated and apportioned to different cost centers are accumulated and apportioned to different cost center on equitable basis and assorted into product cost by applying the overhead absorption rate. Wages or salaries paid to the supervision, foremen, storekeeper, clerical staff, etc, are the example of indirect labour costs.
3. Write any five differences between direct and indirect labour cost.
The different between the direct and indirect labour costs are mentioned below:
a. Meaning: direct Balfour cost is directly involved in the production but indirect cost is not directly involved in the production.
b. Volume of production: direct labour cost depends on the volume of production whereas indirect labour cost is separated.
c. Separation: direct labour cost can be separated in cost, cost center, or unit cost but indirect labour cost cannot is a direct expenditure.
d. Used: direct labour cost is used to convert raw materials into finished goods but indirect labour cost is used in the production process.
e. Payment: payment of direct labour cost is a direct expenditure and, payment of indirect labour is an indirect expenditure.
4. What is labour cost control?
Labour cost may be very high due to inefficiency of labour, wastage of materials, idle time and unusual overtime, inclusive of dummy names in the pay rolls and other related factors. Inefficient uses of labour not only increase the cost of production but also adversely affected the quality of products. The primary objective of the management, therefore, is to utilize the labour as economically as possible. It is therefore necessary for the management to device a proper system of labour cost control.
Control over labour costs requires proper employment and efficient utilization of labour force. These factors affect the cost and quality of the products of any individual undertaking and ultimately its profitability. Laboru cost control involves employment of efficient workers, proper training of workers, proper time keeping and time booking and proper accounting for the wages paid to them.
The advantages of Taylor's differential piece-rate systems are mentioned below:
i. This system provides a great incentive to workers to achieve the standard output and the slow workers always try to achieve greater efficiency.
ii. The system is beneficial to workers as well as employers, since the workers get wages at an increased rate according to units produced and the employer get increased output at lower cost of production.
Disadvantages of Taylor's differential piece-rate system
The disadvantages of Taylor's differential piece-rate systems are mentioned below:
i. This system is different to apply due to the fixation of different rates.
ii. The standard output cannot be justified because if a worker just fails to reach the standard output, the low rate of wages will be given to him. However, if the just reaches the standard, higher rate of wages will be payable to him.
iii. There is a great difference of wages between the higher and lower rates. It creates a large variation in the earnings of the workers and confection may emerge among them.
iv. Moreover, employer-employees relations may also be stained; tankard is put at a very high level.
d. Gantt's task and Bonus Scheme
This scheme was originated by Mr. Gantt. This scheme is a combination of time rate, differential piece-rate and bonus system and guarantees a minimum time rate. Under this system, minimum wages are guaranteed to workers who fail to reach the standard. If the output of the worker is below standard, the worker is paid guaranteed time rate or equal to standard output. In this system, low rate is not necessary to determine total wages for below standard and if a worker's output is at or above standard, he is paid a high piece rate (output 120% of normal rate) for the actual output. The remuneration under this method is computed as follows:
Requirements for calculating total wages/earnings of the worker under Gantt's task bonus plan:
Standard output/standard yield
Standard rate per units/normal piece rate/guaranteed piece rate
High piece rate for at or above standard, generally=120% of normal piece rate
Advantages of Gantt's Task and bonus scheme
The advantages of Gantt's Task and Bonus Scheme are mentioned below:
i. This system encourages the worker to improve the level of performance.
ii. The workers feel that they are getting the reward, which they are entitled to. Thus, it promotes satisfactions among the employees.
iii. This method is very useful in jobs involving engineering activities.
Disadvantages of Gantt's Task and Bonus Scheme
The disadvantages of Gantt's Task and Bonus Scheme are mentioned below.
i. Extreme care is to be exercised in fixing the guaranteed time rate and determination of standard output. Any error caused due to lack of experience will lead to unfavorable consequences.
ii. If the guaranteed time rate is fixed high, the incentive effect of the plan will deteriorate.
Group Bonus Schemes/What is a Group Bonus Schemes?
In the premium plans discussed so far, the bonus payable to an individual was ascertained. Sometimes it is not possible to apply an incentive plan to an individual employees and it may be possible to apply such a plan to the group of employees only. The group bonus system is especial applicable when the worker act in a group as a term. The group incentive plans can be successfully implemented where:
i. Output depends on teamwork and joint efforts of group of workers.
ii. It is difficult to measure the individual result rather than group's result.
iii. It is necessary to work as a member of a team rather than on individual basis, e.g. in chemical process industry, an individual worker cannot influence the production of the plant.
iv. Both direct and indirect workers need to be compensated equally.
v. Skills of the workers in the group do not vary widely.
Advantages of Group Bonus Scheme
The advantages of Group Bonus Scheme are mentioned below:
i. Increase in production and saving in cost of production can be achieved.
ii. Supervision cost will be reduced substantially.
iii. The quality of work is improved.
iv. Absenteeism is reduced to minimum and creates interest in work among the workers.
v. Routing and scheduling problems are eliminated.
vi. It creates team spirit and reduces cost per unit.
vii. Minimizes waste and reduces cost per unit.
viii. Clerical work in calculation of bonus is reduced.
Disadvantages of Group Bonus Scheme
The disadvantages of Group Bonus Scheme are mentioned below:
i. Individual skill and efficiency are not considered in these systems.
ii. Difficult may arise in calculated of bonus and method of its distribution to all workers in the group.
iii. The bonus is paid on group efforts an individual worker may not put his maximum effort in view of equal sharing of bonus to inefficient workers.
iv. An inefficient leader may cause the entire group to suffer.
a. Priest man's plan
Under this system, standard output and standard time for each department is predetermined is consultation with the workers. Bonus is payable to the department when the actual production exceeds the standard production. When the production does not exceed standard, no bonus is paid but times rates are guaranteed. The bonus is calculated as a percentages on such excess production and distributed to all employees in that particular department by increasing their normal wages by the same percentages the actual production increased over the standard.
In this system, the time wages are guaranteed if actual production of the particular division, department, and group is less than the standard output. This method is not only applicable for excess of actual production over the standard but also saving in material and labour costs is also considered for payment of bonus. The main drawback in this system is the efficiency of individual worker is not considered and incident workers can also claim for-bonus.
1. Write/what is the meaning of labour cost.
Labor cost refers to any remuneration paid to the employees by the organization in the form of wages, salary, bonus, allowances etc. for their time and effort used in payable goods or services. In other words, mantel and physical sacrifice is called the labour cost.
The labour cost can be analyses into the following:
Monetary benefits: salaries and wages, dearness or other allowances, production incentive or bonus, overtime allowances, pension fund, payment for insurance scheme, old age pension, retirement gratuity, salary in lien of leave, profit linked bonus etc are the benefit that are provided to the workers in monetary forms.
Non-monetary benefit or fringe benefits: subsidized food and housing, subsidized or free transportation, clothing, education to employee's c hidden, medical and recreational facilities etc. are the benefit that are provided to the workers in non-monetary forms.
2. Write about direct and indirect labor cost.
The labour cost can be classified into direct and indirect and indirect labour cost as mentioned below:
a. Direct labour cost: direct labour cost is that portion of wages and salary, which can be identified and charged to a single costing unit. It is remuneration of the employees who are direct unit. It is the remuneration of the employees who are directly connected with the manufacturing operations or the conversion of raw materials into finished products. The example of direct labour cost is wages paid to workmen put on definite jobs or products in the factory.
b. Indirect labour cost: indirect labour cost is the remuneration of the employees who are not directly connected with manufacturing with the conversion process but assist in the process by way of supervision, maintenance, transportation of materials, materials handling etc. their work benefits all the items being produced and cannot be specifically identified with the individual product. These costs are accumulated and apportioned to different cost centers are accumulated and apportioned to different cost center on equitable basis and assorted into product cost by applying the overhead absorption rate. Wages or salaries paid to the supervision, foremen, storekeeper, clerical staff, etc, are the example of indirect labour costs.
3. Write any five differences between direct and indirect labour cost.
The different between the direct and indirect labour costs are mentioned below:
a. Meaning: direct Balfour cost is directly involved in the production but indirect cost is not directly involved in the production.
b. Volume of production: direct labour cost depends on the volume of production whereas indirect labour cost is separated.
c. Separation: direct labour cost can be separated in cost, cost center, or unit cost but indirect labour cost cannot is a direct expenditure.
d. Used: direct labour cost is used to convert raw materials into finished goods but indirect labour cost is used in the production process.
e. Payment: payment of direct labour cost is a direct expenditure and, payment of indirect labour is an indirect expenditure.
4. What is labour cost control?
Labour cost may be very high due to inefficiency of labour, wastage of materials, idle time and unusual overtime, inclusive of dummy names in the pay rolls and other related factors. Inefficient uses of labour not only increase the cost of production but also adversely affected the quality of products. The primary objective of the management, therefore, is to utilize the labour as economically as possible. It is therefore necessary for the management to device a proper system of labour cost control.
Control over labour costs requires proper employment and efficient utilization of labour force. These factors affect the cost and quality of the products of any individual undertaking and ultimately its profitability. Laboru cost control involves employment of efficient workers, proper training of workers, proper time keeping and time booking and proper accounting for the wages paid to them.
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