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Unit -4 Elements of Cost: Labour, Meaning of Labour Cost: Means Wages paid to labourers who are engaged in production of, Goods and services., Types of Labour Cost: 1) Direct Labour Cost 2) Indirect Labour cost., Components of Labour cost control:, 1) Personnel Department, 2) Labour turnover, 3) Engineering department, 4) Time Recording or keeping department, 5) Pay roll department, 6) Cost Accounting Department., 1) Personnel Department: means in large scale organisation to look attend to the welfare and, problem of workers there is a separate department is as personnel department., Techniques of Labour cost:, 1) Scientific selection and training, 2) Job evaluation, 3) Time and Motion Study, 4) Labour turnover rate., Functions of personnel department: is to recruit the workers, train them and place them to, the jobs on the basis of right men for right job., 2) Labour turnover: Means the change of percentage in the labour force of organisation., Measurement of Labour turnover: There are three methods are as follows:, 1) Separation Method 2) Replacement Method 3) Flux Method., 1) Separation Method: Means it takes into Account only those workers who have left during a, particular period., Labour turnover rate = No of workers left during a period / Average Number of workers X, 100, Average Number of workers = No of workers in the beginning + No of worker at the end /2, 2) Replacement method: Means it takes into account only those new workers who joined in the, place of those who have left., Labour turnover rate = No of workers replaced / Average No of Workers X 100
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3) Flux Method : Means it is a combination of two methods., Labour turnover rate= No of workers left + No workers replaced / Average no of workers X, 100., Causes for Labour turnover: Two Parts 1) Avoidable causes 2) Un avoidable Causes., 1) Avoidable Causes: 1) Bad working Conditions 2) Low wages 3) Long hours of work, 2) Un avoidable causes: 1) Personal dislike of job 2) Retirement of employees 3) Accident., Effects of Labour turnover: It is Expensive. It results in increased cost of productions., 3. Engineering department: It is fix the standard time for completing the work standard time, is determined for particular job on the basis study of time and motion., Functions: 1) Preparation of plans and specification for each job., 2) Conducting time and motion study. 3) Making job Analysis and fixing piece rates 4), Providing safe and efficient working conditions. 5) Supervising production activities in, various productions., Time and Motion study:, Time study Means is an art of observing and recording the time required to do each detailed, element of an industrial operations., Motion Study: Means it is a study of the movement of an operator in performing an operation, for the purpose of eliminating useless motions., 4) Time Recording or keeping department: It is essential to record the timings of the workers, such as arrival to and departure from the factory and how many hours or time spent in the, factory or on a particular job., Time recording includes two parts:, 1) Time keeping 2) Time booking., 1) Time Keeping: Means an Accurate record of each workers time in and out of the plant each, morning and afternoon during regular working hour and over time during irregular working, periods and reporting the time of each employee for each employee for each department, operation and production order., Methods of time keeping: 1) Manual Methods 2) Mechanical Methods., 1) Manual methods: 1) Attendance register 2) The Metal disc system., 1) Attendance register: Means it is kept in the custody of a time keeper at the factory gate., The workers on arrival and departure have to sign and put the time in the muster role.
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Merits: 1) It is simple method 2) It is economical., Demerits: 1) Big queue and delay for signature, 2) Misappropriation., , 2) The metal Disc system: Means a board containing hooks to which employees disc are, attached and located near the entrance of the plant on arrival a worker has to take his disc, and put it in a box or tray kept inside the gate., Merits: 1) It is simple method 2) It avoids over crowding, Demerits: 1) It involves more clerical work 2) Workers may take out his friends disc and put it, in the box., 2) Mechanical Methods: 1) Time recording Clock methods 2) Dial Recorder Method., 1) Time recording Clock methods: Means each worker is assigned a clock number which is, used in identification in preparing pay rolls., Merits: 1) It is simple method 2) More Accuracy 3) It avoids the loss of time., 2) Dial recorder Method: Means it is a dial and the dial has a number of holes around it each, whole represents a number which corresponds to the ticket number of the worker., Merits: 1) More Accuracy in recording time 2) it avoids waste of time for attendance, Demerits: 1) Dial capacity is limited 2) It is costly method., Time booking: Means how much time taken by the worker for each job., Important document used for time booking:, 1) Daily time sheets 2) Weekly time sheets 3) Job Cards 4) Piece work cards:, 1) Daily time sheet: it is a sheet the number of hours spent on each job during the day is, recorded. (Work order number, work done, start time and finished time, hours, rate and, amount), 2) Weekly Time sheet: it is time spent on each job recorded weekly. Each worker is allotted, one sheet and this sheet contains the information for a complete week work., 3) Job Cards: it is prepared for each job and are allotted to each worker. When a worker, takes up a job the card bearing the job number is given to him. The time of starting the job, and finishing the job are entered in the card., 4) Piece work cards: the piece workers are paid on the basis of units job done by them and not, on the time basis.
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5) Pay Roll department: It is responsible for the computation of wages payable to the workers., The wages includes basic wages, overtime wages, bonus, holiday pay etc., 6) Cost Accounting Department: it Collect the information about the time spent by each, labour on different jobs, Process etc and calculate the cost of labour. It prepares the labour, cost report which provides information about the idle time, over time effective labour hours,, labour cost variance etc., Casual or badly workers: Means temporary workers who are not on the regular pay roll of, the factory. They are appointed on daily basis to meet any additional workload., Idle time: Means it represents the time for which they are paid but no production is obtained., Causes of idle time: 1) time lost before starting work 2) time taken in moving from one job to, another 3) Tools setting and removing 4) Waiting for materials 5) Power failure., Over time: When a worker works for more than the normal hours the excess time., Labour remuneration: Means it is used to cover the total monetary earnings of the employees., It includes wages according to time or piece basis and other financial incentives., Objectives of Remuneration:, 1) To attract and retain the qualified employees., 2) To retain the existing employees., 3) To reward employees according to their efforts., 4) To Improve employees morale and productivity., 5) To Facilitate payroll administration., Satisfactory wage system:, 1) It must be simple, 2) It must be flexible, 3) It must be an adequate income to the employee, 4) It should provide various incentives, 5) Quality of output., Methods of wage payment:, 1) Time wages 2) Piece rate system 3) Incentive plans., 1. Time wages: means wages are paid to the employees on the basis of time ( Spent on the job, rate per hour, day or week), Earnings = Time taken X Time rate per hour.( TT X TRPH)
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Advantages :, 1) It is simple to understand, 2) It provides a job security to the workers, 3) It is welcomed by trade unions, 4) Quality Control, 5) It provides guarantee of minimum wages., Disadvantages:, 1) No incentives to hard workers, 2) Go slow tactics, 3) Rigid supervision, 4) No incentives to improve quality, 5) No relation between cost and output, Suitability of time wages:, 1) Quality of work (Tailoring), 2) Workers are learning a job (Typing learners), 3) office Work, 4) Mental work, 5) output cannot be measured in terms of quantity, (Watchman work), 2) Piece rate system: Means wages are paid on the basis of the out put produced by the, workers irrespective of the time taken by him., Earnings = Number of units produced X rate per unit or, If the out put is not given, Earnings = Standard time allowed X rate per unit., Advantages:, , 1) More equitable, 2) Increase in productivity, 3) Supervision not required, 4) No wastages, 5) Low cost of Production.
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Disadvantages:, 1) No guarantee of minimum wages, 2) Quality ignored, 3) Opposition by trade unions, 4) Over work and strain, 5) More Accidents., Suitability of piece rate system:, 1) Standard product, 2) Productivity increased, 3) Degree of Physical work is more., Difference between time wage and piece wage system., Time wage system Piece wage system, 1. It is quality control 1. Quality is not controlled, 2. Rigid supervision is required 2. Rigid supervision is not required., 3) Incentive Plans or wages : Means any plan which induces a worker to produce more and, earn more is called as incentive plans or Remuneration paid for increase output., Incentive plans are as follows:, 1) Differential piece rate 2) Premium bonus plan 3) Group incentive or Group Bonus plan., 1) Differential Piece rate are as follows:, 1) Taylors differential piece rate system 2) Merricks differential piece rate system 3) Gantts, task and bonus plan., 1) Taylors differential piece rate system: under this plan two piece rates are set for each job., viz a) Low piece rate b) high piece rate., a) Low piece rate: output of the workers is below the standard., b) High piece rate: output of the workers is at above the standard., Advantages:, 1) It reduces the cost., 2) It is a reward to efficient workers, 3) It encourages workers to be efficient, 4) It helps in removing inefficient workers.
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Disadvantages:, 1) It does not provide guarantee of minimum wages, 2) Trade unions opposition, 3) Workers are dividend into efficient and inefficient, 4) Workers not as human beings but as machines., Suitability of the plan:, 1) No variation in the nature of work, 2) Standardisation, 3) No delay in work, 4) Accurate task time, 5) More fixed expenses., Earnings = Units Produced X Differential piece rates., Differential piece rates:, 80 % Of Piece rate below standard, 120 % of Piece rate at or above standard, Piece rate per unit = Rate per hour/ Number of units produced per hour, Number of units produced per hour = total minutes per hour/ number of minutes required, per unit., 2) Merricks Differential Piece rate System: means this plan is a modified from Taylor’s, differential piece rate plan. While Taylor’s Prescribed two rates merricks plan lays down, three rates viz., 1. The lowest rate is for the beginner, 2. The Middle rate is for developing workers, 3. Highest rate is for higher efficient workers., Earnings = output X Differential Piece rate, Rate of Remuneration are:, Levels of efficiency Rate, Below 83% Piece rate, Upto 83% to 100% Efficiency 110 % of Piece rate, Above 100 % Efficiency 120% of Piece rate, Efficiency = Actual output / Standard output X 100
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3) Gantts task and Bonus plan: Means it is combination of guaranteed time and differential, piece rate principle. High standard is Set., Level of Efficiency Rate of Bonus, Output below standard No Bonus (Only Time wage), Standard output Time wages + Bonus 20% of Time rate, Output above standard High piece rate on the basis of output., Earnings = Time taken X Time rate, Earnings = Time taken X Time rate + Bonus, Earnings = Output X High piece rate., Advantages :, 1) Minimum wages Guaranteed, 2) Incentive, 3) Efficiency, 4) Condition of works, Disadvantages:, 1) opposed by trade unions, 2) Workers are divided into three Class., 2) Premium bonus plan: divided into three plans are as follows:, 1) Halsey Plan 2) Rowan Plan 3) Emerson’s Efficiency plan., 1) Halsey plan: Means the worker is paid a guaranteed hourly rate plus a percentage of wages for, the time saved. The worker who completes the job less than standard time gets the wages for the, time worked plus a bonus equal to 50% of the time saved., Earnings = Time taken X time rate + 1⁄2 (Time saved X me rate), Time saved = standard time – Time taken, Merits:, 1. It is simple to understand, 2. It encourages efficient workers, 3. It Guarantees minimum wages, 4. Benefits of Save time, Demerits:, 1) Workers oppose, 2) More Supervision
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3) Uneconomic, 4) Little incentives, 2) Rowan Plan: Means Bonus is paid on the basis of time saved in proportion to the total time set as, a standard and it also guarantees a minimum remuneration on hourly basis., Earnings = Time taken X Time rate + Time save/Standard time X Time taken X Time rate., Advantages:, 1) It Guarantee of minimum wages, 2) Incentive to learners, 3) Employees benefits, 4) It rewards efficient workers in the form of bonus., Disadvantages:, 1. It is difficult for workers to understand, 2. It is expensive., Effective rate per hour = Earnings / Time taken, 3. Emersons Efficiency Plan: Means Time wages are guaranteed even to those workers whose output, is below the standard. But bonus is paid in addition to wages to those workers who prove to be, efficient., Efficiency = Actual Output / Standard output X 100, Level of Efficiency, Rate of Bonus Below Standard 66.66%, , Time wages, , 66.66% to 100 %, , Time Wages + Bonus 20 % of Time wages, , Above 100%, , Time wages + 20 % of Bonus of Time wages, + 1% Bonus for every 1 % Increase in efficiency, , Earnings = Time taken X time rate, Earnings = Time taken X time rate + Bonus, Earnings = Time taken X Time rate + Bonus + Bonus % of Increase in efficiency, 3) Group Bonus Plans:, Means Jobs or operations which are required to be done collectively by a group of workers., Objectives:, 1) Obtain better productivity 2) It creates mutual co-operation 3) It is more beneficial to workers., Advantages:, 1) Supervision cost is reduced 2) Increase in production 3) It Provides Guaranteed wages, Dis Advantages: 1) Difficulty in distribution 2) No Motivation 3) Unfair to Efficient workers
