NAME: MOHD.

SAAD
B-COM FT
2 year
nd

Ips Academy

Topic : Labor cost control

Labour cost control

• CONTROL OVER LABOUR COST Labour cost control aims at

the control of thelabour cost per unit of the
production.Control of labour cost is an important objective of ma
management.

A labour cost can be controlled by the management during

production period and even during absence of production. A standard
time and time rate may be fixed and request the labour to complete
the job or order within such time.
WHAT IS LA COST?
COST? WHAT IS LABOUR COST?

• Labour cost represents human contribution. Labour cost is sensitive

in nature. The reason is that the labour cost is fully based on the
human behavior i.e. labour behavior

control of labour costsrequires the control of the labour

behavior. Therefore, the management should study
human behaviour, performance of labour, time and
motion study, labour turnover, labour approach in order
to control the labour cost.
CLASSIFICATION OF LABOUR COST
CLASSIFICATION OF LABOUR COST

• The labour cost may be classified in the following ways.

• 1. Direct Labour Cost

Direct Labour cost is that portion of salary or wage, which
can be identified with and charged to a single unit cost of
production
• Characteristics of Direct Labour Cost:
• The direct labour cost has the following characteristics

• It has direct relationship with the product or process or cost unit.

• It can be measured quantitatively.
• It is sufficiently material in amount
Indirect Labour cost

• It is not identifiable within the production of goods and services

even though directly incurred. These costs are incurred in the
production place. Sometimes, some cost center may render service
to the production departments or production activities. Such cost
centers purchase, engineering and time
keeping.
Controllable labour cost

• A labour cost can be controlled by the management during

production period and even during absence of production. A
standard time and time rate may be fixed and request the labour to
complete the job or order within such time. If so, the labour cost can
be controlled to some extent
Non controllable labour cost

• A labour cost, which cannot be easily controlled by the

management. A job or order can be completed by a group of labours.
The efficiency of such group of labours differ in nature. A labour can
use his/her efficiency in full as per the prevailing environment in the
product place. If so, the cost cannot be controlled by the
management.
Information required for Labour cost control

• The following information is required for labour cost control effectively

• 1. Cost of recruitment of labour.
• 2. Training cost of workers.
• 3. Labour Turnover.
• 4. Idle Time.
• 5. Over Time.
• 6. Shift Work.
• 7. Labour Efficiency.
• 8. Number of workers.
• 9. Wastage.
• 10. Spoilage.
• 11.Wages Paid.
Ways of labour cost control

• The management to control the labour cost effectively may exercise

the following ways.
• 1. Proper production planning.
• 2. Fixing of standard time.
• 3. Fixing of clear-cut wage structure.
• 4. An agreement with workers.
• 5. Preparation of labour budgets i.e. Labour Cost Budget and Labour
Hours Budget.
• 6. Performance reports of labour.
• 7. Fixing of specific incentive payment.
Control over labour cost

• Labour costs constitute a significant portion of the total cost of a

product. Labour cost may be excessive due to inefficiency of labour,
high labour turnover, idle time and unusual overtime work, inclusion
of bogus workers in the wages sheet and many other related factors.

• Inefficiency of labour is also a cause of excessive material and

overhead costs. Therefore, economic utilisation of labour is a need of
the present day industry to reduce the cost of production of the
products manufactured or services rendered.
• Management is interested in labour costs on account of
the following:
• 1. To use direct labour cost as a basis for increasing the efficiency of
workers ;
• 2. To identify direct labour cost with products, orders, jobs or
processes for ascertaining the cost of every product, order, job or
process ;
• 3. To use direct labour cost as a basis for absorption of overhead, if
percentage of direct labour cost to overhead is to be used as a
method of absorption of overhead ;
• 4. To determine indirect labour cost to be treated as overhead; and
• 5. To reduce the labour turnover.
• Hence, control of labour costs is an important objective of
management and the realisation of this objective depends upon the
cooperation of every member of the supervisory force from the top
executive to the forema
• From functional point of view, control of labour costs is affected in a
large industrial concern by the co-ordinated efforts of the following
six departments:
• 1. Personnel Department,
• 2. Engineering Department,
• 3. Rate or Time and Motion Study Department,
• 4. Time-keeping Department,
• ADVERTISEMENTS:
• 5. Pay-roll Department, and
• 6. Cost Accounting Department