How to Calculate Labour Cost: Per Hour, Per Unit, Techniques and Formula

How to Calculate Labour Cost: Per Hour, Per Unit, Techniques and Formula!

Techniques of controlling labour cost can be effectively used by coordinating the activities of various departments concerned with the labour, namely:

(A) Personnel department

(B) Engineering and work study department

(C) Time keeping department

(D) Pay roll department, and

(E) Cost accounting department.

The functions of these departments regarding labour cost ascertainment and control are discussed in detail below:

(A) Personnel Department:

The Board of Directors lays down the policies relating to the recruitment, training, placement, transfer and promotion of employees. The personnel officer who heads the personnel department has to implement these policies. The main function of this department is recruiting workers, training them and their placement in suitable jobs.

The personnel department recruits workers on receipt of employee placement requisition from various departments.

(i) Employee Placement Requisition:

This is a document initiated by a department which is in need of employees. On receipt of the requisition, the personnel department initiates action to appoint workers by receipt of applications, scrutiny of applications, interviewing of applicants and finally selection of suitable candidates.

The proforma of employee placement requisition is given below:

All the workers are appointed as per labour budget. The budget specifies number of workers to be appointed and skills required. It is the task of the personnel department to adhere to the budget and appoint additional workers only if sanctioned by competent authority.

On appointment, each worker is allotted a number, which is to be quoted on all correspondence concerned with the workers. This facilitates easy identification of workers and systematic maintenance of information concerned with the workers in EDP.

(ii) Employee History Card:

The personnel department maintains full details of workers employed. The particulars of each employee are maintained on employee’s history card. The card contains all the relevant information like- (a) Name and address, (b) Number, (c) Department, (d) Date of employment, (e) Category, (f) Educational qualifications (g) Experience (h) Name of former employer and reason for leaving him (i) Scale of pay (j) Skills (k) Promotions (l) Reason for leaving. These details will help the management to assess the employees and particularly the last column will help the management to prevent labour turn over.

In order to have optimum number of suitable workers, control over recruitment of workers is essential.

The following measures will help to control labour recruitment:

(1) Recruitment is to be routed through the personnel department.

(2) Recruitment is made as per labour budget.

(3) Recruitment is to be made only on receipt of employment placement requisition.

(4) Additional labour over and above the budgeted labour has to be recruited only if the sanction is made by appropriate authority.

(5) Recruitment of casual workers is to be properly sanctioned.

(6) Mechanisation is to be introduced wherever possible.

(7) Labour utilisation reports are to be insisted from all departments concerned to enable the management to take decisions regarding the surplus workers, employment of casual labour, utilisation of surplus labour, reduction of labour, reduction of labour turnover, etc.

(B) Engineering and Work Study Department:

Introduction:

This department is concerned with improving working conditions by undertaking the following activities:

(1) Conducting work studies such as methods study, motion study and time study for each operation.

(2) Maintaining required safety standards.

(3) Conducting job analysis and job evaluation.

(4) Preparing specifications and time schedules for each job.

(5) Devising suitable wage system, and

(6) Conducting research and experimental work.

The engineering department is basically concerned with work content, standard time, work performance, etc. They are achieved by conducting detailed work study which includes method study, motion study and time study.

Work Study:

Work study is study of technical aspects of production. It involves a detailed study of processes, operations, evaluation and analysis of jobs and work measurement. Therefore, work study involves methods study, motion study and time study.

(i) Methods Study:

It is a procedure to analyse the work to remove unnecessary operations or practices, systematic arrangement of remaining work and standardisation of work methods. It is only after deciding the best method of doing the work that motion study follows-

(ii) Motion Study:

This is a vital part of work study which divides the work into several important elements. Each of these elements is analysed in detail separately and in relation to each other. When these elements are timed. ‘Least waste is the result’ because motion study eliminates unwanted and inefficient motions.

Main purpose of motion study is to standardise the method of working by economising efforts, reducing fatigue and improving efficiency. Motion study takes into account human element in the job, plant and machinery, tools and materials to be used. When motion study is completed, ‘Time Study’ has to be undertaken.

(iii) Time Study:

Fixing of standard time for each operation is called ‘Time Study’. It is also called work measurement. A standard hour is fixed for each operation which is a hypothetical hour which measures the amount of work to be done in one hour. This helps the management in assessing labour requirements, fixation of wage rates and introduction of incentive schemes. Systematic methods study along with motion study and time study helps in standardising jobs, equipment and methods. It is also helpful in cost control and output and wages control.

Job Analysis:

Job analysis is a process of determining the list of qualifications to be possessed by workers to perform the work effectively.

United states Department of Labour defines Job analysis as- “The process of determining, by observation and study and reporting pertinent information relating to the nature of Job. It is the determination of the tasks which comprise the Job and the skills, knowledge, abilities and responsibilities required of the worker for successful performance and which differentiates the Job from all others”.

Thus Job analysis is the study of the job and identifying the duties and responsibilities involved in the performance of the job, conditions for performance, nature of the job, qualifications to be possessed, opportunities and privileges.

Elements of Job Analysis:

Information relating to a job can be analysed under two sub-heads:

1. Analysis of Information Relating to the Job:

Under this analysis the requirements of the Job are analysed. The requirements are known as Job descriptions.

2. Analysis Relating to the Jobholder:

Under this analysis qualities to be possessed by the employee are analysed. The qualities to be possessed by the job holder are called job specifications.

Advantages of Job Analysis:

1. Fixation of Suitable Rates of Pay:

Since rates are fixed according to the nature of work of each job, the rates fixed will be suitable and equitable.

2. Elimination of Personal Prejudices:

Since the rates are fixed on the basis of job content rather than individual workers worth, disputes relating to pay disparities are avoided.

3. Effective Recruitment:

Job analysis ensures the policy of right man for the right job or “no square pegs in round holes” as the job description and job specifications are the main elements of job analysis.

4. Effective Training:

Job analysis procedure leads to identifying the qualifications and skills required for each job. Thus workers can be given training in the skills needed for a specific job.

Job Evaluation:

(1) Meaning and Purpose:

Job evaluation is the process of studying and assessing the relative values of jobs within an industry, to ascertain their comparative worth.

In addition to indicating relative wage value, job evaluation serves the following varied purposes:

(a) It helps to know whether workers are placed in jobs best suited to them and to the advantage of employers.

(b) It assists the personnel department in recruitment of workers by indicating the responsibilities, requirements and conditions of work and qualities required for each job.

(c) Job evaluation forms the basis for training schemes.

Advantages of Job Evaluation:

(I) To the Employer:

(a) As the qualities required for a job are specified, the recruited employees will be suitable for jobs. Therefore there are ‘no square pegs in round holes’.

(b) As the labour worth is ascertained by job evaluation, the wage fund is fairly distributed.

(c) Jobs evaluation helps in minimising the labour turnover.

(II) To the Employee:

(a) The jobs are best suited to the employees as they are appointed to jobs based on the requisite qualities, skills and experience.

(b) Job evaluation reveals comparative worth of a job and any prospects it has for the employee.

(c) It makes workers happier as the total wages are distributed among the workforce fairly.

(3) Job Evaluation Procedure:

(a) Detailed study of the jobs

(b) Description of Jobs

(c) Job analysis

(d) Arrangement of Jobs in Progression, and

(f) Determining the wage value of Jobs.

(4) Methods of Job Evaluation:

There are four methods of job evaluation as explained below:

(a) Ranking Method:

Under this method the jobs are graded from the highest to lowest according to their relative responsibilities and complexities and not in terms of wage rates. The wage rates are assigned to the jobs on the basis of prevailing rates in the locality. This method is simple and suitable in case of small factories. It is limited in effectiveness as accurate measurement of work is not done.

(b) Grading or Classification Method:

Under this method, the basis of evaluation is defined and the jobs are classified into different grades. For example, grades may be classified as Skilled, Unskilled, Supervisory, Executive and Administrative. Once grades are established the jobs are reviewed and then placed in suitable grades. The jobs in each grade are ranked as a further refinement.

(c) Factor Point Scoring:

Job evaluation under this method is done by comparing and analyzing jobs into common factors. Points are allotted to each factor according to its relative importance.

Following are the common factors generally recognised:

(a) Education

(b) Experience and Skill

(c) Complexities of duties

(d) Responsibilities

(e) Effort, and

(f) Working conditions.

Once the jobs are analysed and points are allotted on the basis of common i factors, the available wages are distributed among the jobs in the ratio of total points of respective jobs.

The main advantages of this method are that it is simple to operate and the results are accurate.

The main disadvantages are:

(1) The points are not clearly defined.

(2) The points to each factor are not scientifically allocated.

(3) Jobs requiring unusual expectations cannot be analysed by fixed factors.

(d) Factor Comparison Method:

This is similar to factor point scoring method. Jobs are analysed, compared and ranked under the following five factors:

(a) Mental requirements

(b) Skill requirements

(c) Physical requirements

(d) Responsibility, and

(e) Working conditions.

The factors are valued by apportioning existing rate of pay among each of them. The jobs are compared factor by factor with the scales of ‘Key Jobs’. The total of values of all the factors is the cash rate for each job.

(e) Merit Rating:

Merit rating aims at evaluating the performance of workers. Main objective of merit rating is to reward the employee on the basis of efficiency and merit. Merit rating brings out the comparative worth of workers.

The traits generally considered for determining merit and worth of workers are as under:

(1) Educational Qualification and knowledge

(2) Skill and experience

(3) Attitude to the work

(4) Quality of work done

(5) Efficiency

(6) Regularity

(7) Integrity

(8) Reliability

(9) Qualities like leadership, initiative, self-confidence and sense of judgement

(10) Discipline, and

(11) Cooperation.

The above traits are allotted with points and total points scored on all traits determine the worth of workers. The employees may be rated individually as per the points they score and they may be put in groups based on their common scores of points.

Importance of Merit Rating:

Merit rating is a valuable tool considered to be important for human resource measurement.

Merit rating has the following advantages:

(1) It helps to know the individual worker’s worth and traits; this helps the supervisor to assign the tasks in which the worker is proficient.

(2) It points out traits in which the workers are not proficient. The workers will have an opportunity to improve by suitable training.

(3) It helps in increasing wages and promotion opportunities.

(4) It helps to stimulate the self-confidence of workers as it recognises the merit and worth of workers.

Limitations of Merit Rating:

(1) The worker may be rated high based on a single trait. The rater may ignore the other traits in which the worker may not be good.

(2) The difference of opinion between the members of merit rating committee may lead to unsatisfactory evaluation.

(3) The men doing the rating may be influenced by their personal ill feelings towards particular workers which may lead to unsatisfactory ratings.

(C) Time-Keeping Department:

This department is concerned with maintenance of attendance time and job time of workers. Attendance time is recorded for wage calculation and job time or time booking is considered for computing time spent for each Department, Job, Operation and Process for calculating labour cost department wise, job wise and of each process and operation.

Objectives of Time-Keeping:

(1) Ensures regularity of employees

(2) Enforces discipline among work force;

(3) Satisfies safety requirements

(4) Useful for preparation of payroll, and

(5) Keeps track of normal! Time, late attendance and early leaving of workers.

(6) Used for Overheads absorption on the basis of labour hours.

Depending on the size of the organisation, a separate time office may be maintained at the gate of the factory. If the firm is small personnel of the gate office may take care of time recording. Since payments of wages are on the basis of time spent by the-workers, accurate time recording is essential.

Essentials of a Good Time-Keeping System:

(1) Good time keeping system prevents ‘proxy’ for one another among workers.

(2) Time-keeping has to be done for even piece workers to maintain uniformity, regularity and continuous flow of production.

(3) Both the arrival and exit of workers is to be recorded so that total time spent by workers is available for wage calculations.

(4) Mechanised methods of time keeping are to be used to avoid disputes.

(5) Late arrival time and early departure time are to be recorded to maintain discipline.

(6) The time recording should be simple, quick and smooth.

(7) Time recording is to be supervised by a responsible officer to eliminate irregularities.

Methods of Time Keeping:

There are two methods of time keeping:

(1) Manual methods.

(2) Mechanical methods.

(1) Manual methods of time keeping are as follows:

(a) Attendance register method.

(b) Metal Disc method.

(a) Attendance Register Method:

This is one of the traditional methods of time keeping. An attendance register is kept at the time office adjacent to the factory gate or in each department for the workers of that department. The register contains details regarding name of the worker, worker’s number, department in which he is employed, arrival time, departure time, normal time, over time, etc. The arrival and departure times may be recorded by the time keeper.

This method is inexpensive and simple. It is suitable in small organisations. Dishonest practices are possible in this method on account of collusion between workers and time keeper.

(b) Metal Disc Method:

Under this method the workers are allotted a disc or token with a hole bearing the identification number of the workers. The discs or tokens are hung in board with pegs. Board may be maintained separately for each department. The workers remove their tokens as they enter the factory and put them in a specified box.

Once the scheduled time lapses the box is removed. The workers who come late have to remove their token and handover to time keeper who will record exact time of arrival. If any tokens remain they indicate the absentee workers. Later on the time keeper records the attendance in a register known as ‘Daily Muster roll’ which is used by the payroll department to prepare wage bill and wage slips.

This method is simple and easy to follow. It can be followed even if there are illiterate employees. They can easily identify their tokens. It is usable by companies which are large in size with more number of workers.

But it has certain disadvantages-

(a) An employee may remove his companion’s token to have the attendance marked even when his companion is absent.

(b) Disputes may arise regarding the arrival time of the workers as the time keeper may commit mistakes.

(c) There is possibility of time keeper including dummy or ghost workers in the muster roll.

2. Mechanical Methods:

Time recording clocks are used to maintain accuracy and reliability.

There are two types of such devices:

(a) Time recording clocks.

(b) Dial time records.

(a) Time Recording Clocks:

Time card is allotted to each worker for a week’s duration. Time cards are kept in a tray at the gate in serial numbers. The worker picks up his card from the tray and enters it in the time recording clock which records the exact time of arrival in the allotted space. This can also be done for departure, lunch break and over time.

The time cards may also give details regarding hourly rate, gross wages, deductions, and net wages payable. Wages are calculated on the basis of time recorded.

The specimen of combined time and pay roll card is given below:

(b) Dial Time Recorder:

This machine has a dial around the clock. The dial has about 150 holes and each hole bears a number corresponding to the identification number of the worker concerned. The dial has a radial arm at the centre. The worker has to place the radial arm at the hole of his number and his time will be automatically recorded on a roll of paper against the worker’s number.

The time of worker is transferred by the machine to the wage sheet. The machine also calculates the wages of workers. It provides great accuracy and saves time. The only limitation of dial time recorder is that of high installation cost and its use for a limited number of workers.

Time Booking:

Time spent by the worker on different jobs and works is called time booking. This is the productive time of workers.

The following are the objectives of time booking:

(1) It ensures that the time paid for, as per time keeping is properly utilised on jobs and orders.

(2) It enables the cost department to ascertain the labour cost of each job or work order.

(3) It helps in allocation and apportionment of wages among different departments where labour hour rate method is used as basis.

(4) It helps to calculate idle time.

(5) It is helpful when incentive schemes are in operation in the factory by revealing the time spent by the workers on different jobs.

(6) Time booking also helps in measuring the efficiency of workers by comparing standard time for the jobs with actual time.

The documents used for time booking are as under:

(a) Daily time sheet.

(b) Weekly time sheet.

(c) Job ticket or Job card.

(a) Daily Time Sheet:

The daily time sheet is issued to each worker who records the time spent on different jobs during the day. These sheets are used in small firms with less number of workers. The daily time sheet is verified and signed by the Foreman at the end of each day.

The specimen of daily time sheet is given below:

(b) Weekly Time Sheet:

This is an improvement over daily time sheet because the daily time sheet increases the number of documents and volume of work. The weekly time sheets are filled up by the worker and verified and counter signed by the foreman. In some cases it is filled up by the departmental clerk to avoid incorrect entries by the workers. Moreover the precious time of the foreman is not wasted verifying the entries made by the workers.

The specimen form of weekly time sheet is given below:

(c) Job Cards:

In order to accurately arrive at the time spent on each job, the job cards are used.

There are four types of job cards in use:

(i) Job Card for each worker

(ii) Job Card for each Job

(iii) Combined time and Job card, and

(iv) Piece work card.

(i) Job Card for Each Worker:

A Job card is issued to each worker for a week or for a day. The starting and completing of each job are recorded. It serves the double purpose of ascertaining the time spent on each job and total time worked by the workers during the week or for the day.

The ruling of the Job Card is given below:

(ii) Job Card for Each Job:

A card is issued for each job. This is essential when job has to pass through a number of workers for completion. The total number of hours on the job and total labour cost can be ascertained from the card.

Specimen of Job Card is given below:

(iii) Combined Time and Job Card:

This serves dual purpose of time keeping and time booking. The card reveals the attendance time and job time. The utilisation of the card is practicable only when the number of workers is low.

The specimen of the card is given below:

(iv) Piece Work Card:

This card is maintained by firms which use piece-work method of payment of wages. When the payment is made by result basis the quantity produced is taken into account but not the time spent by the workers. However, to maintain the flow of production and discipline among the workers time also has to be recorded. The piece work card displays the quantity produced, rejections if any and piece wages payable.

The specimen of piece work card is given below:

Reconciliation of Time Keeping and Time booking:

(I) Idle Time:

The attendance time should agree with job time. Generally it does not happen on account of many reasons. E.g.,- time required for walking from factory gate to the department, time lost in waiting for materials, tools, instructions, time lost due to break-down of machinery, power failure, etc. This time which is wasted is termed as idle time. Idle time card is prepared to ascertain the idle time. The idle time card shows the reason for idle time, so that action can be taken to prevent the avoidable idle time.

The specimen of the idle time card is given below:

Types of Idle Time:

Based on causes or reasons for its occurrence, idle time can be divided into two categories i.e.:

(a) Normal Idle time.

(b) Abnormal Idle time.

(a) Normal Idle Time:

This is inherent in all kinds of employment and cannot be avoided. The cost of this time is borne by the respective jobs or products or departments.

Examples of normal idle time are given below:

(1) Time consumed by the workers to walk from gate to department.

(2) Time taken to pick up tools, change of dress and picking up instructions for work.

(3) Time consumed for changing from one job to another.

(4) Time taken for personal needs and tea break.

(5) Waiting time when the machine is made ready for production work, called setting up time.

Treatment of Normal Idle Time:

Normal idle time is unavoidable and its cost is charged to production.

There are two ways of charging normal idle time to production:

(1) Normal idle time cost is taken as factory expenses and recovered as indirect charge.

(2) The normal idle time cost is directly charged to production as direct wages.

(b) Abnormal Idle Time:

The abnormal idle time is avoidable idle time which occurs due to conditions which can be prevented.

The reasons for abnormal idle time are as follows:

(1) Time lost due to machine break down,

(2) Time lost due to power failure;

(3) Time lost on account of shortage of materials;

(4) Time wasted due to lack of instructions; and

(5) Time lost on account of strikes and lock outs.

Treatment of Abnormal Idle Time:

A basic principle of cost accounting is to eliminate the effect of all abnormal losses and gains on jobs or processes or operations by transferring all abnormal costs and gains to profit and loss account. They should not form part of the cost of production. Wages paid for abnormal idle time is charged to Costing Profit and Loss Account.

Control of Idle Time:

The abnormal idle time can be controlled by effective planning. The reasons for idle time are to be analysed and steps are to be taken to provide for all contingencies like preventive maintenance of machinery, proper arrangement for providing sufficient materials, preparation of job instructions in advance, avoidance of strikes, etc. Even normal idle time can be controlled by efficient administrative planning and supervision.

(II) Overtime:

Employees are expected to work during a fixed schedule of hours of a day or a week. If they work beyond-the hours the excess hours are called overtime hours. In other words, the work performed beyond the normal hours is called overtime work.

The Indian Factories Act provides for payment of wages at double the normal rates for overtime. If a worker works for more than 9 hours in a day or for more than 48 hours in a week, he is treated to have worked overtime and is given wages at double the normal rate for such time. The wages are calculated at normal rate up to 9 hours and at double the normal rate for hours worked beyond 9 hours in a day or calculated at single rate up to 48 hours and at double the normal rate beyond 48 hours.

The additional amount paid to workers on account of over time is called overtime premium.

Overtime is not to be encouraged as it increases cost of production because of the under mentioned reasons:

(1) Overtime is paid at double the normal time rates.

(2) Overtime is done after normal hours which are late hours, when fatigue sets in and the efficiency of workers may not be at the required level.

(3) In order to have sufficient work for overtime, the workers may not work to their potential during normal time.

(4) Expenditure incidental to overtime like electricity, maintenance of plant, wear and tear and supervision, etc., have to be additionally incurred.

Each of the above will push up the cost and therefore over time is not preferable unless the demand for output is such that revenues justify the additional cost.

Treatment of Overtime:

The normal wages form part of direct labour cost whereas there is controversy regarding treatment of overtime premiums. The work done during normal time has to bear single rate and work done during over time to cost double which creates ‘inequity’. To do away with this, the normal wages are to be increased to include overtime premiums so that the jobs either during normal time or during overtime will bear the same cost.

But if overtime is done on account of pressure from a specific customer, the over-time premium is charged to that customer. If the overtime is due to abnormal reasons like machine break down, power failure, the overtime premium is charged to costing profit and loss account directly, as an abnormal cost.

Control of Overtime:

Since the overtime has many disadvantages it is to be avoided and controlled to the fullest extent.

The following measures are suggested:

(1) All usual work has to be completed in normal time to leave little scope for over-time work.

(2) The justification for over time should be backed up by substantial benefits and the over-time should be sanctioned by a competent authority.

(3) The maximum limit of over time should be fixed for each worker.

(4) Frequent and periodical reports are to be prepared and forwarded to the management relating to hours of over-time and its cost. This will enable the management to take corrective action.

(D) Pay Roll Department:

Objectives:

This department prepares the pay bill of the entire organisation.

The objectives of the pay roll department are mentioned below:

(1) Maintaining a record of Job, department and wage rate of each worker and to arrive at each worker’s total earnings, deductions and net earnings.

(2) Ascertaining wages of different cost centres.

(3) Summarising the total deductions to post them to the accounts concerned.

(4) Ascertaining the total hours of each cost centre to calculate labour cost and rate per hour for control purpose.

(5) Ascertaining overtime and idle time wages.

(6) Providing internal check system in payment of wages.

Preparation of Pay Roll:

On the basis of time cards the departmental payroll or wage sheets are prepared. A full-fledged pay roll shows the gross wages, various deductions and net wages payable. The pay roll is the basis for ascertaining wages and posting entries to various control accounts. The details of pay roll depend on requirements of the organisation.

The following is the specimen of pay roll:

Preparation of pay roll has two aspects; one is to arrive at gross wages payable in the form of wages including over time premium and allowances. The second aspect of pay roll is to compute deductions in the form of ESI, PF, Income Tax, recovery relating to loans and advances, etc. Most of the firms prepare this nowadays through computers.

Precautions Regarding Payment of Wages:

Various kinds of frauds may take place in connection with payment of wages. Unless a suitable system is designed to prevent these frauds, the loss may be recurring and will reduce the profitability of firms. An effective internal check and certain precautions will help in reducing and prevention of frauds in wage payment.

A detailed procedure regarding time keeping, time booking, preparation of pay roll and finally payment of wages is mentioned below to help reducing frauds in wage payment:

(1) Time keeping is to be done mechanically as much as possible and adequate and efficient supervision is essential to avoid frauds in time keeping.

(2) The method of computation of wages, various allowances, incentives and deductions is to be made simple and clear so that doubts do not arise.

(3) If the piece work rate is prevailing, the output is to be promptly inspected to maintain quality of output and wages are paid for only good output.

(4) If incentive schemes are in operation based on time, records are to be maintained for actual hours worked and time saved.

(5) The over-time should be approved by proper sanction of competent authority. Actual over time is to be compared with approved overtime to reveal any unapproved over time to take suitable action for its prevention.

(6) Effective internal check is to be introduced in wage sheet preparation. The work done by a clerk should be verified by another clerk to have internal checks to ensure accuracy and to prevent frauds.

(7) The cashier should not have any roll in preparation of wage sheets. Similarly the clerk involved in preparation of wage sheet should not have any hand in preparation of wage envelops.

(8) The wage sheets are to be verified by personnel officer to detect any dummy workers included fraudulently.

(9) It is to be seen that the workers are identified before the wages are handed over to each of, them.

(10) The payment of wages is to be made simultaneously in all departments to avoid any worker being present at two places.

(11) The wages of absentee workers due to sickness are to be paid only on proper authorisation letter.

(12) The undisbursed wages are to be entered in a separate record kept for that purpose. Care is to be exercised while disbursing these wages.

(E) Cost Accounting Department:

Introduction:

The department is responsible for ascertaining correct cost of production.

Cost ascertainment involves classification, collection and computation of labour cost of output. In most of the organisations a representative of cost department is posted in the production department to accumulate and classify the cost. The cost accountant supervises the work of the representatives and uses the information contained in time cards and pay roll to find the labour cost of production by production departments, operations, production orders, etc.

The cost accounting department also analyses the labour cost in the form of idle time and overtime. Labour cost reports are also submitted to the management to intimate the effectiveness of labour utilisation.

Documents of Wages Accounting:

(1) Clock Cards, Job Cards and Idle Time Cards:

These are the basic documents to calculate labour cost of jobs, departments, operations and production orders. Reconciliation between clock cards and job cards is essential to reveal idle time.

(2) Rate of Pay Schedules and Deduction Charts:

These documents are helpful for preparing payroll.

(3) Wage Analysis or Wages Abstract:

This is an analysis of payroll in respect of different control accounts. It is an abstract of wages paid job wise and wages paid for idle time. The total of these should agree with total wages paid.

(4) Journal and Ledger Accounts:

Posting of various transactions relating to labour cost is done from the pay roll. Various transactions are posted to control accounts in the general ledger. Various subsidiary ledgers in the form of work-in-progress ledger, factory over-head ledger, etc., are posted with the relevant labour cost items.

Wage Analysis:

The wages chargeable to different jobs are shown in the analysis sheet called wage analysis sheet. This is suitable when the firm is small and less number of jobs are performed.

When the jobs done are more as in the case of large firms, the total labour cost on the time sheets will be pre listed and agreed with the pay roll summary.

The ruling of wages abstract is given below:

The analysis sheet shows the labour cost of different jobs and indirect labour cost charged as overheads.