Chapter 3:

Costing for Labour

PAA1333
Introduction
 Labour is the workforce of an organization
 Right people, right place, right time
 All people recruited must be matched with right
job, trained, reasonable wage, motivated and
appraised, acceptable environment
 Manager manages their workforce
professionally
 Labour is a major cost in all organizations
Introduction
Direct Labour Indirect Labour

The worker who make the product/ The worker who are involved indirectly
provide the service in the production process or service

Carpenter in a furniture factory, Factory supervisor, Managers, cleaners

Production operators in manufacturing
factory, Chefs or cooks in a restaurant

Direct Cost Calculated under Overhead Cost

Introduction

Productivity

• Recruitment and induction

• Training
• Motivating Satisfaction
L
• Appraising
A
• Paying wages, salary, overtime pay,
B incentives and benefits Low turnover
O • Conducive working environment
R • Career development
• Represented by union
• Recognition of contribution Lower costs
Recruitment

Request for Examination/

Advertise
new worker interviews

Personnel
A worker
record is
recruited
openned
Labour turnover rate
•
Labour turnover
Avoidable cause Unavoidable causes

Paying lower wages Misbehaviour or indiscipline

Unsatisfactory working condition Retrenchment due to shortage of resources

Poor relationship among worker and supervisor Retirement, death, accidents or illnesses

Unsuitable jobs Marriage, pregnancy or difficulties with child care

Unsafe working conditions The family moves away from the locality

Stressful working conditions

Inadequate training

Lack of opportunity for career advancement

Labour turnover cost
• Preventive cost
1. All costs incurred to prevent worker from leaving the
organizations
2. Example : costs on recruitment, selection, training,
medical benefit, worker welfare, facilities,
transportation, canteen, pension scheme,
administration cost, etc
• Replacement cost
1. Cost involved in replacing the employees
2. Example : cost in selection and training new workers,
loss production time, inefficient of new workers,
inexperienced and incompetent new worker cause
wastage, losses, lower production, breakages, accidents,
etc
Recording Labour Times
 To calculate wages
 To analyse the time spent for costing purposes
 For planning and control purposes:
1. Attendance records or clock card
2. Output records
I. Time sheets – worker records time spent on each job
II. Job cards – record time spent on a particular job
III. Job tickets – a card that made out for each operation within a single job

3. Idle time – basic salary paid but no production. Worker can not perform
the work (not because their fault). Why?
Unavoidable cost due to idle time – indirect cost production overhead
Avoidable cost due to idle time – Charge directly to profit and loss account
Methods of Remuneration
To calculate labor cost of work done.
Wages payment method:
1. Time rate
Wages= Hours worked x rate of pay per hour
2. Piecework scheme – employees are paid base on output
Wages = Unit produced x rate of pay per unit
3. Premium pay
4. Individual Bonus Scheme
I. Hasley bonus scheme
II. Helsey-weir bonus scheme
III. Rowan bonus scheme
5. Group Bonus Scheme
6. Profit Sharing Scheme
7. Overtime premium
Methods of Remuneration –
Individual Bonus Scheme -continue
To encourage worker work efficiently and more productive.
Example: working above standard or save time.
Individual will be paid their basic wage + bonus
Halsey Bonus Halsey – Weir Rowan Bonus
Scheme Bonus Scheme Scheme

Bonus = (Time
Bonus = ½ x Bonus = 1/3 x taken/time
time saved x time saved x allowed) x
basic day rate basic day rate time saved x
basic day rate
Ada2 Saja Bhd. produces home furniture. Ada2 Saja Bhd. working day is 5
days per week. Below are the information relating to the production.
• Normal working hour in a week 40 hours
• Normal unit produce per week 150 units
• Rate per hour RM10 hour
• Time allowed completing 1 unit 15 minutes
• Rate per unit RM0.20 for each minute
• Overtime rate per hour 1.5 times

Calculate the gross wages including the individual bonus under each
scheme:
1. Halsey Bonus Scheme.
2. Halsey-Weir Bonus Scheme
3. Rowan Bonus Scheme.
Operator Ali Baba Chinta Dia

Hours worked 38 35 33 30

Output produced 195 units 180 units 180 units 160 units

Time saved (hour) 2 5 7 10

Basic wage (RM) 380 350 330 300

Halsey bonus 10 25 35 50

Halsey-weir 7 17 23 33

Rowan 38/40x2x10=19 44 58 75

Total wages (halsey) 380+10=390 375 365 350

Total wages (halsey- weir) 387 367 353 333

Total wages (rowan) 399 394 388 375