labour cost&wage determination
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LABOUR COST&WAGE
DETERMINATION
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LABOUR COST
It represent the human contribution towardsproduction,
Labour always requires a harmonious andcongenial atmosphere ,a treatment based onhealthy human relationship for success of theorganization.
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COMPOSITIONOFLABORCOST
Monetary payments
-basic wages
-DA
-BONUS-E.P.F
-E.S.I
-GRATUITY
-PENSION
-Medical allowance ,L.T.A
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NON MONETARY PAYMENTS
housing facility
educational facility to children of employees
Canteen subsidized meals
Medical and health facility
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LABOURTURNOVER
It is an index denoting change(in and out) in the labor force foran organization in a specified period. if labour turnover ratio ishigh it is a bad situation for the organization.
CAUSES OF HIGH LABOUR TURNOVER
AVOIDABLE CAUSES
-low wages-dissatisfaction with job
-unsatisfactory relations with boss or subordinates
-unfair method of promotion
-lack of conveyance, accommodations
-Hours of work
-bad or no training facilities
UNAVOIDABLE CAUSES
-Retirement or death
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CONTINUE..
-accident or suffering from some disease
-discharge due to negligence, inefficiency,
-domestic responsibility
Cost of labour turnoverReplacement cost
Cost of spoilage
Delay in recruitment Inefficiency of new workers
Quality of work
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HOWTOCALCULATELABORTURNOVERRATIO
Separation method
Replacement method
Flux method
No of separations
average no of employees
No of employees replacedAverage no of employees
No of employees left+no of
employees joinedAverage no of employees
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METHODSOFWAGEPAYMENT
Time rate system
Piece rate system
Incentive schemes
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OVERHEADS ,CLASSIFICATION
,ALLOCATIONANDABSORPTION
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INTRODUCTION
Overheads are those indirect costs which can notbe directly allocated to any specific job ,process,product or a cost centre. For example rent of thebuilding,adminstration exp, supervision depreciation
repairs & maintenance, selling and distribution exp.
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CLASSIFICATIONOFOVERHEADS
Element
wiseFunctionwise
Behaviorwise
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ELEMENTWISECLASSIFICATION
indirect material
indirect labour
indirect overheads
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FUNCTIONWISECLASSIFICATION
Production overheads
Office and administration overheads
Selling overheads
Distribution overheads
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BEHAVIORWISE
Fixed overheads
Variable overheads
Semi variable overheads
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COSTALLOCATION ,ABSORPTION
Allocation of overheads cost meanscharging the entire amount of a cost to acost centre .the nature of expenses is such
that it can easily be identified and allocatedto cost centre.
For example salary of sales manager isallocated to the sales deptt. Salary of
foreman can be allocated to productiondeptt.
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APPORTIONMENTOFOVERHEADS
Where the expenses are common and related tovarious cost centers and it is be allotted to differentcost centers on certain basis.
Rent of the factory is to be shared by differentdeptts,it can be apportioned on some suitablebasis. Like floor area,
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BASISOFAPPORTIONMENT
Fire insurance of plant
Rent and rates
Electric light
Depreciation Material handling
charges
Crche expenses
Power
Value of plant
Floor space
No of electric points
Capital value Weight of material
No of female workers
No of machine hours
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COST SHEET - ADVANCED
OPENING STOCK OF RAW MATERIALS+PURCHASES
-CLOSING STOCK OF RAW MATERIALS
VALUE OF RAW MATERIALS CONSUMED+DIRECT WAGES+DIRECT EXPENSES
PRIME COST+FACTORY OVERHEADS+OPENING STOCK OF WIP-CLOSING STOCK OF WIP
FACTORY COST(CONT.)
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FACTORY COST
+ADMINISTRATIVE OVERHEADS
COST OF PRODUCTION+OPENING STOCK OF FINISHED GOODS-CLOSING STOCK OF FINISHED GOODS
COST OF GOODS SOLD+SELL. & DIST. OVERHEADS
COST OF SALES+PROFIT
SALES
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PREPARECOSTSHEET
Stock (1-4-09)
-raw material
-finished goods
Stock (30-4-09)-raw material
-finished goods
Purchase of RM
Carriage on purchase
W.I.P on 1/4/09
30/4/09
250000
173000
262000
157000
219000
11000
82000
91000
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CONTINUE
Sale of finished goods
Direct wages
Non productive wages
Direct expenses Factory overheads
Administrationoverheads
Selling &distributionoverheads
723000
172000
8000
1200083000
32000
42000
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SHOWCOSTSHEETFROMTHEGIVENDATA
Sales
Raw material
- 1-1-03
31-12-03
W.I.P opening
closing
Finished goods
opening
closing
Purchase of rawmaterial
800000
40000
32000
55000
72000
16000
24000
152000
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CONTINUE..
Direct labor
Manufacturingoverheads
Selling expenses General &admin exp
145000
108000
5000040000
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MACHINEHOURRATE
It may be defined as the cost of running a machinefor one hour .machine hour rate is calculated bydividing the production overheads with no ofmachine hours.
overheads are divided in two parts
-fixed charges or standing charges ( salary, rent,insurance)
-variable charges power, repairs and maintenance
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CALCULATEMACHINEHOURRATE
Purchase price of machine 400000
Installation charges 100000
Rent per quarter 3750
General lighting 1000 per month
Foreman salary 30000 per annum
Insurance premium 3000 per annum
Repairs 5000 p.a
Consumable stores 4000 p.a
Power consumed 2 units per hour at Rs 50 per 100 units. life ofmachine is 10 years. scrap value at the end of 10th year is Rs100000 .the machine is expected to run for 20000 hours in itslifetime. Machine occupies 1/4 area .the foreman devotes 1/6of his time on this machine.
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CALCULATEVALUEOFRAWMATERIALCONSUMED
Opening stock of raw material 20,000
Closing stock of raw material 30,000
Direct wages 2,10000
Factory overheads 60% of direct wages General overheads 10% of works cost
Cost of production 6,88,600
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PREPARECOSTSHEET
A component item involves material cost of Rs 6per unit and 10 minutes to produce .The operator ispaid Rs 72 per hour and machine hour rate is Rs150 the setting up time is 2hours and 20 minutes.
Show cost sheet if the batch of production is of
a) 10 units
b) 100 units