Labour Cost

Labour Cost-Types
• Direct Labour Cost
• Indirect Labour Cost
Attendance and Payroll
Procedures
1. Manual Method
2. Mechanical Method
3. External payroll Processing
Overtime
• Occurs when a worker works beyond normal working
hours(factories Act).

• The extra amount beyond the normal rate is known as

Overtime Premium.
Overtime- Disadvantages
Excessive labour cost

Labour productivity is decreased due to low labour efficiency

Puts extra strain on Machine.

Bad effect on the health of the workers

Increase in certain overheads because of working after hours.

Workers may develop a tendency to work in overtime and take overtime

wages.

If overtime work is not distributed amongst the workers properly , it may
lead to discontent.
Overtime- Treatment
a) When OT is Job specific- charged to the job or work order
concerned.

b) When OT is due to general pressure – either treat premium

as direct labour cost by inflating the wage rate, or treat it as
indirect wages and include in the overheads.

c) When OT is due to abnormal reasons- charged to Profit and

loss account.

7--- 20$/hour
8----??(20/7*8)==22.9
IDLE TIME
• It represents time lost by the workers who are paid on time
basis.
• Difference between the time for which they are paid and the
time they actually spend on production.
IDLE TIME- Causes
1. Productive Causes
 Machine Breakdown
 Power Failures
 Waiting for tools/ raw materials
 Waiting for work
 Waiting for instructions

2. Administrative Causes
 Administrative decisions
 Surplus capacity of machine
 Do not want to discharge the trained workers
 Uncontrollable

3. Economic Causes
 Fall in demand
 Severe competition
 Nature of industry
NORMAL IDLE TIME
• Wastage of time which cannot be avoided and has to be borne
by the employer.

EXAMPLES-

• Time which elapses between completion of one job and the start of next.
• Time taken from going to the factory gate to the premises.
• Personal needs- tea, rest etc.
• Time spent on setting machines.

• Cost can be treated as-

i. Overhead Cost-( charged to factory cost)
ii. Direct Wages
ABNORMAL IDLE TIME
• Time which arises due to reasons in no way connected with the
usual routine.

EXAMPLES-

• Time lost due to breakdown of machine

• Strike and lockouts
• Time lost in waiting for tools and raw material
• Accidents etc.

• It can be attributed to defective planning, inefficiency or bad luck.

• Transferred to profit and loss account.

Incentive Schemes
HALSEY PREMIUM PLAN-
• Workers are paid at a rate per hour the actual time taken by
them
• A standard time is set for each piece of work
• If a worker takes more than standard time, he is paid extra.
• If the workers takes less time than standard, he is paid the
bonus

Total earnings = Time rate x Time taken + Bonus

BONUS= 50% of ( Time saved x Time Rate)

Let us see if you Can you solve
this???
Quest-1
Standard time 50 hours
Wage rate per hour Rs. 3
Actual time taken 42 Hours

Total earnings= Time rate x Time taken + Bonus

=(3x42)+12
=Rs.138
Bonus=50% of ( Time saved x Time Rate)
= 50%of (8x3)=12
Time Saved= 50-42hours
Quest-2
A workman’s wages for a guaranteed 44- hour week is Rs. 7.50 per hour. The
estimated time to produce one article is 30 minutes and under an incentive
plan. During A week, a worker produced 100 artices. The time allowed is
increased by 20% per cent. Calculate total earnings as per Halsey Plan.
Rowan Plan
• Wages are paid on time basis for actual time
• A standard time is determined for each piece of work.
• Work take more time than the standard time, the wages are
paid for the actual time taken.
• Worker completes within the standard time he is given the
bonus.

Total earnings = (Time rate x Time taken) + Bonus

BONUS= Time Saved X Time taken X Time rate

Time Allowed
Let us see if you Can you solve
this???
Quest-1
Standard time 50 hours
Wage rate per hour Rs. 3
Actual time taken 42 Hours

Total earnings = (Time rate x Time taken) + Bonus

= (3x42)+20.16 = Rs.146.16

BONUS= Time Saved X Time taken X Time rate

Time Allowed
= (8/50)x42x3 = 20.16
A workman’s wages for a guaranteed 44- hour week is Rs. 7.50 per hour. The estimated
time to produce one article is 30 minutes and under an incentive plan. During A week, a
worker produced 100 artices. The time allowed is increased by 20% per cent. Calculate
total earnings as per Halsey and Rowan Plan.

Solution:
Std time- 20% of 30 = 36(one article)
100 article= (36x100)= 3600 minutes= (3600/60)= 60 hours

Halsey-
Bonus- 50%(16x7.50)=Rs.60
Earnings= 44x7.50+60= Rs.390

Rowan-
Bonus=(16/60)x44x7.50 = Rs.88
Earings= (44x7.50)+88= 418
Taylor's Differential Piece Rate System
• Day wages are not guaranteed.

• A standard time for each job is set.

• Higher and lower piece rates are set for each job.

• Higher rate is payable when a worker completes within

standard time.

• Lower rate is payable to those who takes more time than the
standard.
 Let us see if you Can you solve this???
Quest-1
Standard Production 8 units per hour
Working hours per day 8 hours
Lower rate Rs.5 per unit
Higher Rate Rs. 8.75 per unit
Worker X produces 7 units
Worker Y produces 9 units

Find the wages of worker X and Y under Taylor’s Plan.

Solution
Worker X 7x5= Rs.35
Worker Y 9x8.75= 78.75
Merrick’s Differential Piece Rate
System
• Modification of Taylor plan
• Three rates prescribed- the lower, middle and the highest.
 Let us see if you Can you solve
this???
Standard output 150 units per day of 8hours
Piece Rate Rs. 0.20 per unit
Output A: 100 units
B: 135 units
C:180 units

Find the wages of worker A, Band C under Merrick’s Plan.

Efficiency-
A: (100/150)*100=66.66%--0.20 per unit
B: (135/150)*100=90%---(110/100)*0.20
C : (180/150)*100=120%--(120/100)*0.20

Wages :
A: (0.20*100) 20.00
B: (0.22*135) 29.70
C: (0.24*180) 43.20
Emerson’s Efficiency Plan
• Designed to encourage the slow workers to perform better.
• Time wages are guaranteed.
• The standard output plan is fixed to represent 100% efficiency.
• A bonus is paid to the worker if efficiency exceeds 66 %.

Efficiency Bonus
a. Below 662/3% No Bonus(Only Time wages)
b. 662/3% to 100% Bonus Increases in steps and rises to 20% at
100% efficiency
c. Over 100% 20% bonus plus 1% bonus for each increase of
1% in efficeiency.
 Let us see if you Can you solve
this???
Standard output in 8 hours 60 Units
Actual output in 8 hours 72 Units
Time rate Rs.2 per hour

Efficiency:
(72/60)*100= 120

Bonus= 20%+20%=40%
8*2=16
Add (40/100)*16= 6.40
Total earnings= 16+6.40=22.40
Bedaux Plan
• Standard time for each job is determined in minutes-Known as
Bedaux points.

• One unit B represents the amount of work which an average

worker can do under ordinary conditions in one minute.

• The Standard time is determined by work study and each job

is assigned a number of B’s.