Accounting for Labour | Labour Cost Control | Personnel Department

 

 

Meaning of Labour

Every manufacturing company and business organization needs human being resources.

These humans being may be the resource of administrators and labour.

Without labour, a manufacturing company cannot complete its production.

It is saying, “Talented, caliber and skilled manpower is other assets of the business organization.”

 

There are three types of labour.

They are unskilled labour, semi-skilled labour and skilled labour.

Unskilled labour gets fewer wages but skilled labour gets the highest wages.

 

The payment made to the labour in exchange for its service is called labour cost.

It is a major part of the total cost of production. Labour cost is also commonly called wages.

Labour cost or wages is one of the major elements of cost.

Labour cost represents the expense incurred on both direct and indirect labour.

However, labour cost is more than just wage.

It includes the total amount of financial benefits given by the company to all its workers and employees for their time and effort used in producing goods and services.

 

Labour cost includes monetary and non-monetary (fringe) benefits.

Monetary benefits include basic wages, dearness allowance, employer’s contribution to provident fund, production bonus, pension and gratuity etc.

Fringe benefits include subsidized food, subsidized housing, subsidized education, medical facilities and holiday pay etc.

 

Labour cost is an important part of manufacturing and construction company.

After materials; the labour cost is the largest part of the production.

Every labour has his/her merits and demerits; he/she can work upto a certain level.

When workers do their best work, the cost per unit will be decreased.

So, to control labour cost, the organization should understand workers.

To take more work from workers, the organization should satisfy them.

 

  

 

Importance of Labour Cost

Labour cost is an important element of production. Some importances of labour cost are given below:

The main importance of labour cost is to determine the labour cost of production.

It helps to minimize the idle time of the workers.

It helps to the effective mobilization of work.

It helps to the manager to take the decision regarding workers.

It helps to cost control regarding labour.

It provides bases of apportionment for indirect labour and general expenses.

It helps to minimize labour turnover in the organization.

 

 

Labour Cost Control

Without labour cost, it is not possible to produce.

All the production company needs labour.

The large amount is paid for labour for production.

Therefore, it is necessary to control labour cost.

To control labour cost, proper exercise is needed.

Efficient utilization of the labour force is known as labour cost control.

For most favourable labour cost control, management should use the effective technique.

From the functional point of view, labour is involved in the following department:

Personnel department

Engineering or work-study department

Time and motion study department

The timekeeping department

Cost accountancy department

The payroll department

 

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Need of Labour Cost Control

The following are the needs or reasons to control labour cost:

To minimize labour cost as possible as.

To obtain maximum output by using skilled labour.

To obtain the best quality goods by using good materials and skilled labour.

To adopt a fair wages system for skilled and unskilled labour.

To minimize labour turnover.

To minimize wastage of materials and idle time of labour.

To coordinate among various departments about labour.

To use bases of apportionment for indirect labour and general expenses.

 

 

Personnel Department

Personnel mean workers or employees.

It is a service department.

This department is concerned with the recruitment and selection of employees.

This department selects and takes the examination of the new employees with coordination of other department head. The main functions of this department are:

Employees’ recruitment, selection and training,

Placement, fixation of wages, promotion, transfer and discharge,

Maintaining service and leave records of employees,

Preparation and submission of various reports to the concerned department,

This department maintains two other important documents:

Labour placement or employee requisition

Employee history card

 

 

Engineering or Work-Study Department

The engineering department maintains working condition.

It also maintains production methods for each job or department.

The functions of this department are:

To determine and provide for good working conditions,

To determine the production method for each job,

To prepare the design for each job,

To apply time and motion study,

To determine the rate of pay,

To apply for research and development work,

To do job analysis and job studies,

To reduce labour turnover rate.

 

 

Time And Motion Study

Time and motion study is based on scientific management.

Under scientific management, the standard task of every worker is determined with careful study.

Here, standard means quantity produced by an average worker under standardized condition.

The time and motion study department carefully determines a standard task for every worker.

Motion study aims to eliminate unnecessary work.

It helps to ascertain the easiest and best method for performing a job.

The object of the motion study is to improve working capacity and reducing fatigue.

This study is the art of observing and recording the time to do each job.

It helps to fix a standard time for a job.

 

 

 

Timekeeping Department

Time recording serves two purposes viz timekeeping and time booking.

Timekeeping refers to the recording of the incoming and outgoing time of workers in a factory.

Timekeeping refers to recording the time employees spent on various jobs. For example:

To calculate the wages payable to the workers,

To calculate the normal working hours and overtime working hours of the workers,

To calculate labour cost of process or job,

To apportion on overhead when they are based on number of workers,

To control labour cost,

To introduce incentive among workers.

 

 

Payroll Department

The payroll department is concerned with the calculation and disbursement of wages to employees.

The main function of the payroll department is to prepare a wage sheet.

The wage sheet contains detailed information of the gross and net income of each worker.

It has the following functions:

To record the job classification, department and wage rate for each employee.

To verify and to summarize the time of each worker as shown on the daily time cards.

To compute the wages of each employee and prepare the payroll.

To compute the payroll deductions.

To maintain a permanent payroll record of each employee.

To disburse wage or salary payments etc.

 

 

Cost Accounting Department

This department is related to proper labour costs control.

This department accumulates information of each employee and classifies all.

This department is also responsible for presenting clear and well-designed reports on labourers.

Such report includes normal and abnormal idle time, department labour cost, variances from budgeted costs etc.

The main functions of the cost accounting department are:

To accumulate and classify labour cost according to job, process and production.

To prepare different reports showing direct labour cost, indirect labour cost, overtime and labour cost variances.

To highlights the areas where managerial action can help to reduce the labour cost.

 

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