Unit 4: Accounting for Labor

Objectives:
Accounting for Labor
Calculation of direct and indirect cost of Labor
Understanding different remuneration methods
Labor Turnover Ratio, Overtime, and idle time
Labor efficiency, capacity and volume ratios

Learning Outcome:
Solve problems relating to Time Measurement, Cost Control, and calculation of Labor Ratios.

4.1 Introduction
Labor costs are a significant part of the budget, especially in companies which are labor
intensive. It is the price of human effort in the product, and its control necessitates
collective effort. The total amount of wages paid to workers, as well as related expenses, is
referred to as labor cost. It covers the workers' hourly or piece-rate compensation. It may
be high due to labor inefficiencies, high idle time and overtime payments, increased
spoilage, wastage, and defective manufacturing due to a lack of supervision and inspection,
and other factors. As a result, it is evident that labor cost control is vital in any organization
in order to reduce production costs and improve labor efficiency.
The cost of labor affects not only the cost of production but also the organization's industrial
relations. Without fair wages, no firm can hope to recruit and retain talented and motivated
staff. Employee remuneration thus has a significant impact on the company's growth and
profitability.
Therefore, a proper cost accounting system should be in place to identify direct and indirect
labor costs. Similarly, the cost accounting department should be able to generate and
maintain records for timekeeping, time booking, idle and overtime, the impact of incentive
schemes, per unit of labor, labor turnover costs, and other related records.

4.2 Labor and Labor Cost

Labor: Labor refers to the amount of physical, mental, and social effort required to generate
products and services. It provides the knowledge, manpower, and support required to
transform raw materials into finished goods and services. In other words, the number of
workers in the economy and the hours they put in to produce goods and services is termed
as Labor.
Labor cost: Employee Cost is defined as "the totality of all types of compensation paid
or payable, and relevant provisions for future payments for services rendered by employees,
including temporary, part time and contract labor. Wages, salaries, contractual payments
and other benefits, as well as any payment made on behalf of an employee, are all
considered. This is often referred to as "Labor Cost."
The proper classification of labor costs is the first step toward controlling and reducing labor
costs. Therefore, total labor cost is divided into two categories:
(a) Direct labor costs
(b) Indirect labor costs.

4.3 Direct and Indirect Labor Cost

1. Direct Labor Cost - The cost that can be linked to a product unit directly is known as
direct labor cost. Direct labor cost is that portion of wages or salary that can be
associated with and charged to a single costing unit. It is also known as the total cost of
all labor incurred to transform the product's construction, composition, or condition. It is
classified as product cost, inventory cost, prime cost, or a conversion cost.
For instance, workers employed in any production process or department may fall into one
of two main categories:

 Those actively involved in the production or execution of an operation or a process;

 Those who assist in the process through monitoring, administration, material
transportation, and other means.
Workers in the first category perform direct labor, and the wages they receive are referred
to as direct wages or direct labor cost.
Example: Assume that the direct labor cost per hour for assembling a toy car is Rs100, and
that the manufacturer anticipates each car to take 0.5 hours to assemble. If the company
produces 1,000 toy cars, then the standard direct labor cost will be:
1000 units*(0.5 hours*Rs.100) = Rs.50,000.
2. Indirect Labor Cost - Indirect wages are the wages paid to the workers who facilitate or
assist in the production process instead of being actually involved in it. It is the cost that
cannot be linked to a specific product unit. The indirect labor costs include salaries given
to the employees and assistants in departments such as purchasing, storekeeping,
recordkeeping, administration, and others. 
In contrast to direct labor expenses, indirect labor costs are less easily linked to specific
units.
Examples of indirect labor cost are:
Employees such as the office manager, clerks, supervisors, salesmen and others.
Legal adviser
Administrative directors
Quality control staff
Accountants
It refers to labor that does not change the structure, conformation, composition, or
condition of something, but which, in general, contributes to such work and the completion
of the product and up to the point of its dispatch. 

4.4 Accounting for Labor Cost

Accounting for Direct Labor Cost: The Direct Labour Cost can be charged directly to the job
or product units and is included in the prime cost.
Accounting for Indirect Labor Cost: In accounting, indirect labor costs are classified as
overheads, as other indirect expenditures. They are either recognized as an expense in the
period in which they occur or allocated to a cost object using a specified overhead rate. They
are mainly treated as overheads in the income statement.

4.5 Calculation of Direct and Indirect Labor Cost

 Calculate the direct/indirect labor hourly rate by incorporating fringe benefits, hourly
pay rate, and employee payroll taxes into the calculation.
Example: The employees are paid Rs.15 per hour and work 40 hours per week. In addition,
they receive Rs.200 in fringe benefits. Calculate the total of benefit and divide by 40 to get
Rs.5. The Rs.5 is added to the Rs.15 to arrive at a Rs.20 hourly rate.

 Calculate the direct/indirect labor hours: The number of direct labor hours required to
create one unit of a product is referred to as direct labor hours.  Deduct the total time
spent on holidays, sick leaves, training or seminars per year This is derived by multiplying
the total number of finished goods by the total number of direct labor hours required to
make them.
Total direct/indirect labor hours/ Total units produced = Direct/Indirect Labor hours per
unit
Example: If it takes 100 hours to make 1,000 things, it takes one hour to make 10 products
and 0.1 hours to make one unit.

 Calculate the per-unit direct/indirect labor cost: Multiplying the direct labor hourly rate
by the time required to complete one unit of a product gives the labor cost per unit.
Labor hours taken per unit* Labor hourly rate = Labor cost per unit
Example: If the hourly rate is Rs.20, and one unit of a product takes 0.1 hours to make, the
direct labor cost per unit is Rs.2 (Rs.20 x 0.1).

4.6 Methods of Remuneration

Low wages do not imply low labor costs per unit. High wages, in reality, enhance labor
productivity, and the resulting increase in output will almost likely lower labor costs per
unit. The efficiency of labor is heavily influenced influenced by the amount of payment
provided to it.   It should be remembered that low-paid workers are often inefficient, which
results in material waste, inefficient tool use, frequent machinery breakdowns, and lost
time, all of which raise the cost of manufacturing. In reality, it is now widely accepted that
well-organized industries pay the highest wages while still producing the best products.
As a result, the significance of the manner of wage payment should never be overlooked.
Wage payment methods should be carefully planned and implemented.
4.6.1 Piece rate wage system (Output based)

 Straight piece rate system

Under this system, employees are paid for the amount of work they complete, rather than
the time spent doing the work. The pay is calculated by multiplying the number of units
produced by the wage rate (which is generally fixed). It is one of the most straightforward
ways to make a payment.
Straight Piece Rate = No. of units produced * Wage rate per unit
Example:  Worker X produces 9 units of tray in an hour. The producer pays wages at the rate
of Rs. 20 per unit. Calculate the earnings per hour.
Solution: Earnings = No. of units produced * Wage rate per unit
Earnings = 9 units * Rs. 20 per units = Rs. 180 per hour.

 Differential piece rate system

Workers' pays change at different stages of production, within a defined range of activity,
under this arrangement. The two systems that work on this concept are:
1. Taylor’s differential piece rate system: F.W. Taylor created this technique. The following
are the characteristics of this wage payment system:
 Wages are not guaranteed.
 Each work is allocated a specific number of hours.
 There are two separate piece rates set:
“Lower piece rate” defined as 80% of the standard piece rate since the actual output
produced is less than the standard output.
“Higher piece rate” defined as 120% of the Standard piece rate as the output
produced is equal to or more than the standard output.
Formula: (Actual output/Standard output) *120 (or 80) *Rate per unit
2. Merrick’s differential piece rate system: The 'Multiple piece rate system' is another
name for this concept. Instead of two grade piece rates, three grade piece rates are
applied in this method. The following are the characteristics:
 Wages are not guaranteed.
 Each work is allocated a specific number of hours.
 Slabs are:
Less than or equal to 83.33 % of the Standard Output: 100% of the standard piece
rate
 Above 83.33 % but less than or equal to 100% of standard output -110% of standard
piece rate
Above 100% of the standard output - 120% of the average piece rate
4.6.2 Time rate wage system (Time based)
The time rate, often known as the day rate, is a wage rate that is related to the number of
hours worked. Depending on the nature of his skill, the wage rate might be set on an hourly,
daily, weekly, fortnightly, or monthly basis.
This technique can be used in the following situations:
(a) Where a worker's output cannot be assessed
(b) Where a worker's production is not under his control
(c) Where the job can be closely supervised
(d) The quality of work is more important
(e) Where the increase in output is negligible in comparison to the incentive
4.6.3 Premium Bonus Method

 Halsey Premium Plan

F.A. Halsey, an American engineer, first created the Halsey Premium Plan. The main features
of this system are:
1. Each job has a set amount of time allotted to it.
2. It ensures that workers are paid for the actual time they spend on the job.
3. If time is saved, a bonus is paid.
4. The bonus is equal to half of the time wages for the time saved.
Bonus = 50% * (Time saved * Rate per hour)
Earning = (Time taken * Rate per hour) + 50% * (Time saved * Rate per hour)
Example: The standard time it takes to produce 200 pieces is 50 hours. Wages are paid at a
rate of Rs. 5 per hour. The time it takes to create 200 pieces is 45 hours. Calculate the
earnings as per Halsey plan.
Solution: Earning = (Time taken * Rate per hour) + 50% * (Time saved * Rate per hour)
Earning = (45 hours * Rs. 5 per hour) + Rs. 12.5 = Rs. 237.5
 Bonus = 50% * (Time saved * Rate per hour)
Bonus = 50% * [(50 – 45) hours * Rs. 5 per hour] = Rs. 12.5

 Rowan Premium Plan

The Rowan premium plan is identical to the Halsey plan, except in the calculation for bonus.
The main features of his plan are:
1. Workers are paid based on the amount of time it takes them to complete the job.
2. Employees are compensated for the time saved.
3. Bonus is computed as a percentage of time wages saved compared to standard time.
Bonus = (Time saved / Time allowed) * Time taken * Rate per hour
Earnings = (Time taken * Rate per hour) + Bonus
Example: The standard time it takes to produce 200 pieces is 50 hours. Wages are paid at a
rate of Rs. 5 per hour. The time it takes to create 200 pieces is 45 hours. Calculate the
earnings as per Rowan plan.
Solution: Earnings = (Time taken * Rate per hour) + Bonus
Earnings = (45 hours * Rs. 5 per hour) + Rs. 22.5 = Rs. 247.5
 Bonus = (Time saved / Time allowed) * Time taken * Rate per hour
Bonus = [(50 – 45) hours /50 hours] * 45 hours * Rs. 5 per hour = Rs. 22.5

4.7 Labor Turnover Ratio

The ratio of people resigning in a given period to the average number of people employed is
known as labor turnover. It refers to a shift in an organization's labor force composition. It
can be measured by relating the engagements and losses in the labor force to the total
number employed at the beginning of the period. Regardless of the reason for retiring, all
losses must be considered.
Causes of labor turnover

 Early retirement due to illness or advanced age.

 Seasonal nature of the business
 Relocation of the plant
 Job dissatisfaction, compensation, working hours, working conditions, and so on.
 Disability, making a worker unfit for work
 Tensions with management, supervisors, or coworkers
 Low earnings and allowances.
4.7.1 Replacement Method
This method takes into account actual employee replacement of employees irrespective of
number of persons leaving the organization. Under this method, employee turnover is
computed as follows:
(Number of employees replaced during the period ÷ Average number of employees during
the period) *100
New employees appointed as a part of expansion plan are not taken into account under this
method.
4.7.2 Separation Method
The relationship between the number of workers separated or resigned the organization
and the average number of workers in the time is represented in percentages using the
Separation Method. Surplus workers, poor working conditions and compensation, fewer
opportunities for advancement, and other factors may cause a worker to be let go or
separated from the company.
By using the Separation method, the following formula is used to calculate labor turnover:
(Number of workers who left or were separated during a period / Average number of
workers employed during that period) * 100
4.7.3 Flux Method
This is a mixture of the separation and replacement methods. In the Flux method, both
separation and replacement are taken into account when calculating labor turnover.
As a result, the percentage relationship between the organization's workforce separation
and replacement over time and the average number of workers employed at that time is
expressed. To determine labor turnover using the flux method, apply the formula below:
(Number of workers separated in a period + number of workers replaced in the same
period) / Average number of workers on the job during that period * 100

 Average number of Workers = (number of employees at the start of the period +

number of employees at the end of the period) / 2

4.8 Overtime and Idle time

4.8.1 Overtime
Overtime is when a worker works beyond of his or her regular working hours. The overtime
rate is always more than the standard rate, and it is normally double it. It is made up of two
parts: the standard cost and the additional payout or premium.
The worker's standard cost is assigned to the Production Order, cost center, or unit on
which he or she is working. The treatment of overtime pay differs depending on the
situation.
Overtime premium
The amount of remuneration paid to workers for overtime performed in excess of the
standard wage rate is known as overtime premium. The additional amount paid to
employees for the overtime hours.
A worker, for example, works 40 hours per week at a rate of Rs.10 per hour. If he works 48
hours in a week and the company, he works for pays him Rs.15 for each hour worked in
excess of 40 hours in a week.
Direct Labor Cost = 48 hours*Rs.10 = Rs.480
Overtime Premium = 8 hours*Rs.5 = Rs.40
The labor cost of Rs.40 in the above computation is the overtime premium. Such Overtime
premium is a portion of the manufacturing overhead, not the direct labor cost.
Causes of Overtime

 Working during peak seasons.

 Compensating for time lost due to unavoidable circumstances.
 For completing a work or order within the time frame set by the customer.
 For working as a result of policy decisions.
 Whenever there is widespread work pressure and a labor shortage.
Treatment of Overtime Premium

Situation
If the overtime is resorted to at the desire
of the customer
If it is due to a general pressure of work to
increase the output
If it is due to the negligence or delay of
workers of a particular department
If it is due to circumstances beyond control
Treatment
The entire amount of overtime including
overtime premium should be charged to
the job directly.
The premium as well as overtime wages
may be charged to general overheads.
It may be charged to the concerned
department.
Tt may be charged to Costing Profit & Loss
Account.

4.8.2 Idle Time

When workers are paid on hourly basis, there is generally a disparity between the time they
are paid for and the time they actually spent in the production. Idle time is defined as time
lost for which the employer pays but receives no direct benefit. It is the amount of time
workers spend doing nothing during a typical working day.
Idle time = Total Time spent by a worker (-) Actual Time spent on production
Idle time can be normal or abnormal.
1. Normal Idle Time
It is an unavoidable part of any work situation. This is the amount of time that cannot be
saved and for which the employer is liable to pay for the labor expense.
Causes

 The amount of time spent on personal things and tea breaks.

 The amount of time that passes between the completion of one job and the start of the
next.
 The amount of time when production is halted for machine repair.
 The time taken in picking up the work for the day.
 The time it takes a worker to get from the factory gate to the department of work, and
then back from the department to the factory gate at the end of the day.
 The time lost due to waiting for job, instructions, drawings, the prints, material etc.
Treatment
Idle time cost arising due to normal causes should be charged as overheads or cost of
production.
2. Abnormal Idle Time
Idle time can also be caused by unusual reasons such as a lack of coordination, a power
outage, a machine malfunction, a lack of raw materials, strikes, lock-outs, insufficient
supervision, a fire, or a flood is knowns as abnormal idle time.
The reasons of abnormal idle time should be broken down into controllable and
uncontrolled categories.
Controllable idle time refers to time that could have been spent doing something productive
if management had been more aware and efficient.
Uncontrollable idle time refers to time lost due to unusual circumstances over which
management has no control.
Causes

 Machine breakdown,
 Strike of the labor.
 Electricity problem leading to stoppage of production.
 Shortage of raw materials
 lock-outs
 poor supervision
 fire, flood, etc.

Treatment
The salaries paid for abnormal idle time is not considered part of the cost and is therefore
excluded from cost accounting, instead, it is immediately charged to the Costing Profit and
Loss Account.
Idle time ratio
Idle hours/ Total budgeted/standard hours *100
 Illustration: Zeta product is made by an organization. Idle time is expected considering
the nature of the manufacturing process, and the normal amount of idle time is
anticipated to be 20% of total hours worked. One unit of product zeta takes 0.36 hours
to be created on average. The hourly rate for labor is Rs.10.
Answer: The Labor time required including the idle time =
(0.36/80) *100 = 0.45 hours per unit
Labor cost per unit = 0.45 hours*Rs.10 = Rs.4.5
Idle time = 0.45 - 0.36 = 0.09 hours
Idle time cost = 0.09 hours*Rs.10 = Rs.0.9
Idle time ratio = 0.9 hours/0.45 hours = 0.2 or 20%

4.9 Labor Cost Control and Ratios

4.9.1 Labor Efficiency Ratio
The efficiency ratio is the number of standard hours available for actual output produced
expressed as a percentage of the actual hours spent or worked in production. This ratio
determines how efficient a company's operations are.
Steps:
1. Calculate Standard hours for producing actual output
Budgeted hours taken for producing 1 unit * Actual output produced
2. Calculate Labor efficiency ratio
Standard hours for Actual output/ Actual hours worked for actual output *100
4.9.2 Labor Capacity Ratio
The actual usage of budgeted capacity ratio is also known as the capacity ratio. It depicts the
link between the actual number of working hours and the number of budgeted hours. This
ratio shows how much of the available facilities were actually used during the budget
period.
Capacity Ratio = Actual hours worked/ Total budgeted hours *100
4.9.3 Labor Activity Ratio or Volume Ratio or Productivity Ratio
The activity ratio is the number of standard hours spent producing real output as a
percentage of total standard hours worked. The degree of activity at which a business
operates is measured by this ratio.
Steps:
1. Calculate Standard hour for producing actual output
Budgeted hours taken for producing 1 unit * Actual output produced
2. Calculate Labor volume ratio
Standard hours for Actual output/ Total budgeted hours *100
The following is how control ratios can be interpreted:

Results Interpretation
100% No Variance
Above 100% Favorable Variance
Below 100% Unfavorable Variance
 Illustration: Product Alpha takes 8 hours and Product Beta takes 12 hours to finish.
800 units of Alpha and 800 units of Beta were manufactured in a month of 25 effective
days of 8 hours per day. The production department employs 70 workers, with a total of
1,50,000 hours planned for the year. Calculate the control ratios.
Answer: Labor Cost Control Ratios are:

Particulars Hours
Standard/budgeted labor hours 150000 hours
Standard/budgeted labor hours for one 12500 hours
month = (150000 hours/12 months)
Standard hours for Actual Output
Product Alpha (800 units*8 hours) 6400 hours
Product Beta (800 units*12 hours) 9600 hours
Total Standard Hours for Actual Output 16000 hours
Actual Hours worked 14000 hours
(25 days*8 hours per day*70 workers)

1. Labor Capacity Ratio

= Actual hours worked/ Total budgeted hours *100
= 14000/12500*100
= 112%
2. Labor Activity Ratio
= Standard hours for Actual output/ Total budgeted hours *100
= 16000/12500*100
= 128%
3. Labor Efficiency Ratio
= Standard hours for Actual output/ Actual hours worked *100
= 16000/14000*100
= 114.28%

4.10 Conclusion
Labor costs refer to remuneration paid to the employees by the business in the form of
wages, salary bonus, allowances etc. for their time and effort.
They are usually split into direct and indirect labor costs, based on the worker’s contribution
to the production process. While direct labor comprises work done on certain products or
services, indirect labor is employee work that can’t be traced back or billed to services or
goods produced.
The payroll is a record which shows details of the gross wages earned by each worker in a
particular period, the deductions made and the net wages payable.
Indirect labor is a component of conversion cost. It is classified as an overhead and refers to
the costs that cannot be traced directly to specific products or services
Indirect labor is a component of conversion cost. It is classified as an overhead and refers to
the costs that cannot be traced directly to specific products or services
Idle time is the unproductive time that company spends without producing anything. It is
the cost that spend without providing any benefit to the company or customers. Idle time is
bound to occur due to setting up of tools for various jobs, time interval between two jobs,
time to travel from factory gate to work place.
The proportion of workers leaving compared to the average number of workers is referred
to as labor turnover.
Labour turnover reduces the labour productivity and increases costs. Hence, it should be
kept at a minimum level.
A sound wage system helps to attract qualified and efficient worker by ensuring an
adequate payment.
If the worker finishes the work in half the time fixed for it, the result under Rowan and
Halsey plan will be same.

4.11 Glossary
 Direct Labor Cost: It refers to all labour expended in altering the construction,
composition, conformation or condition of the product.
 Indirect Labor Cost: It refers to labour expended that does not alter the construction,
conformation, composition or condition of the product, but which contributes generally
to such work and to the completion of the product and its progressive movement and
handling up to the point of dispatch.
 Time-Keeping: Time-keeping is necessary for the purpose of recording attendance and
for calculating wages.
 Time-Booking: Time-booking means a record from the utilisation point of view and the
purpose is cost analysis and cost apportionment.
 Job Cards: Job Card is a method of recording details of time with reference to the jobs or
work orders undertaken by the workers.
 Payroll: The payroll is a record which shows details of the gross wages earned by each
worker in a particular period, the deductions made and the net wages payable.
 Overtime: Overtime refers to the situation when a worker works beyond his normal
working hours.
 Idle time: The loss of time for which the employer pays but obtains no direct benefit is
termed as idle time.
 Labor Turnover: Labour turnover is the ratio of the number of persons leaving in a
period to the average number employed.

4.12 Self-Assessment Questions

1) State how direct and indirect labor cost is bifurcated and its accounting treatment in the
books.
2) Explain with example the differential piece rate systems.
3) What are the different approaches for calculating labor turnover?
4) What is overtime premium and how it is accounted for?

4.13 Questions for discussion forum

1) Moderate labor turnover is usually beneficial to the company. Discuss.
2) Low wages do not necessarily mean low costs and Lower labor cost per unit does not
mean low wages. Explain.

4.14 Case Study

Zeta is a cloth manufacturing company that produces on job bases for various clients.
The Standard time allowed for a particular job work is 60 hours while the worker’s actual
time taken is 50 hours to complete the job. Wages are paid based on an hourly rate of Rs.
2.25 with a dearness allowance of 25 paise per hour worked.
Calculate a worker's earnings under:
a) Time Rate Method
b) Differential Piece Rate Method
c) Halsey Plan
d) Rowan Plan

4.15 Multiple Choice Questions

1) Labor costs are a significant part of the budget when company is:
a) Capital Intensive
b) Labor Intensive
c) Technology Intensive
d) Cost Intensive
Explanation: Labor costs are a significant part of the budget, especially in companies which
are labor intensive.
2) Labor cost includes:
 a) Basic pay
b) Dearness allowance
c) Fringe benefits
d) All the above
Explanation: Wages, salaries, contractual payments and other benefits, as well as any
payment made on behalf of an employee, are all considered.
3) Those who assist in the process through monitoring, administration, material
transportation, and other means falls under
a) Skilled labor
b) Direct labor
c) Indirect labor
d) Unskilled labor
Explanation: The indirect labor costs include salaries given to the employees and assistants
in departments such as purchasing, storekeeping, recordkeeping, administration, and
others. 
4) The Direct Labour Cost can be charged:
a) Indirect expenditures
b) Directly to the job or product
c) Directly in Statement of Profit or loss
d) Overheads
Explanation: The Direct Labour Cost can be charged directly to the job or product units and
is included in the prime cost.
5) Merrick’s differential piece rate system is also known as:
a) Multiple piece rate system
b) Differential piece rate system
c) Time rate wage system
d) Taylor’s differential piece rate system
Explanation: 'Multiple piece rate system' is another name for Merrick’s differential piece
rate system.
6) If Standard Output is 110 units, output produced is 120 units and rate per unit is Rs. 10
paise, then earning as per Taylor’s system is
a) 13.2
b) 14.4
c) 13.09
d) 14.33
Explanation: (Actual output/Standard output) *120*Rate per unit
(120/110*120*0.10) = 13.09
7) An American engineer who first created the Halsey Premium Plan:
 a) F.W. Taylor
b) F. W. Halsey
c) Merrick
d) F. A. Halsey
Explanation: F.A. Halsey, an American engineer, first created the Halsey Premium Plan.
8) Under Rowan premium plan, Bonus is equal to:
a) Bonus = (Time saved / Time allowed) * Time taken * Rate per hour
b) Bonus = 50% * (Time saved * Rate per hour)
c) Bonus = (Time saved / Time allowed) * Time taken * 50%
d) Bonus = (Time saved * Rate per hour) * Time taken
Explanation: Under Rowan premium plan, Bonus is equal to (Time saved / Time allowed) *
Time taken * Rate per hour
9) The ratio of people resigning in a given period to the average number of people
employed is known as:
a) Replacement Method
b) Labor Turnover
c) Flux Method
d) Separation Method
Explanation: The relationship between the number of workers separated or resigned the
organization and the average number of workers in the time is represented in percentages
using the Separation Method.
10) (Number of employees replaced during the period ÷ Average number of employees
during the period) *100 is used under:
a) Flux Method
b) Replacement Method
c) Separation Method
d) Labor Turnover
Explanation: Under Replacement Method, employee turnover is computed as follows:
(Number of employees replaced during the period ÷ Average number of employees during
the period) *100
11) Average number of Workers is equal to:
a) (Number of workers separated in a period + number of workers replaced in the same
period) / Average number of workers on the job during that period * 100
b) (Number of employees replaced during the period ÷ Average number of employees
during the period) *100
c) (Number of workers who left or were separated during a period / Average number of
workers employed during that period) * 100
d) (Number of employees at the start of the period + number of employees at the end
of the period) / 2
Explanation: Average number of Workers = (number of employees at the start of the period
+ number of employees at the end of the period) / 2
12) It is made up of two parts: the standard cost and the additional payout:
a) Idle time cost
b) Overtime premium
c) Labor cost
d) Labor turnover cost
Explanation: Over time premium is made up of two parts: the standard cost and the
additional payout or premium.
13) If the overtime is resorted to at the desire of the customer, then:
a) The premium as well as overtime wages may be charged to general overheads.
b) It may be charged to the concerned department.
c) It may be charged to Costing Profit & Loss Account.
d) The entire amount of overtime including overtime premium should be charged to
the job directly.
Explanation: If the overtime is resorted to at the desire of the customer, then the entire
amount of overtime including overtime premium should be charged to the job directly.
14) Time lost for which the employer pays but receives no direct benefit:
a) Overtime
b) Paid Leave
c) Idle time
d) Abnormal loss
Explanation: Idle time is defined as time lost for which the employer pays but receives no
direct benefit. It is the amount of time workers spend doing nothing during a typical working
day.
15) Idle time cost arising due to normal causes should be charged:
a) Prime Cost
b) Costing Profit and Loss
c) Overheads
d) Direct labor cost
Explanation: Idle time cost arising due to normal causes should be charged as overheads or
cost of production.
16) __________ idle time refers to time that could have been spent doing something
productive if management had been more aware and efficient.
a) Controllable idle time
b) Uncontrollable idle time
c) Unavoidable idle time
d) Abnormal idle time
Explanation: Controllable idle time refers to time that could have been spent doing
something productive if management had been more aware and efficient.
17) Standard hour for producing actual output is equal to:
a) Actual hours worked/ Total budgeted hours *100
b) Standard hours for Actual output/ Total budgeted hours *100
c) Standard hours for Actual output/ Actual hours worked for actual output *100
d) Budgeted hours taken for producing 1 unit * Actual output produced
Explanation: Standard hour for producing actual output =
Budgeted hours taken for producing 1 unit * Actual output produced
18) ________ is necessary for the purpose of recording attendance and for calculating
wages.
a) Time-Booking
b) Time-Keeping
c) Job Cards
d) Bin Cards
Explanation: Time-Keeping is necessary for the purpose of recording attendance and for
calculating wages.
19) A record which shows details of the gross wages earned by each worker in a particular
period, the deductions made and the net wages payable IS:
a) Cost sheet
b) Job card
c) Payroll
d) Bin card
Explanation: Payroll is a record which shows details of the gross wages earned by each
worker in a particular period, the deductions made and the net wages payable.
20) If the worker finishes the work in half the time fixed for it, the result under Rowan and
Halsey plan will be:
a) High in Rowan and low in Halsey
b) High in Halsey and low in Rowan
c) Not equal
d) Equal
Explanation: If the worker finishes the work in half the time fixed for it, the result under
Rowan and Halsey plan will be same.