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Under ABC Analysis, the materials in stock are divided into three categories for the purpose of control
...
Between these two items are those items, the percentage of which is more or less equal to their value in
consumption
...
Such an analysis of material is known as ABC analysis
...
Thus, under this technique of material control, materials are
listed in "A', B and "C" categories in descending order based on money value of consumption
...
VED analysis
Vital items which render the equipment or the whole line operation in a process totally and immediately
inoperative or unsafe; and if these items go out of stock or are not readily available, there is loss of production for
the whole period
...
Desirable items which are mostly non-functional and do not affect the performance of the equipment
...
Examples of waste are dust, smoke, gases etc
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It is measurable and has a minor value
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from metal; off-cuts and cut pieces in leather & cloth industry
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Spoiled units do not attain the quality required and it is not
economic to correct them
...
Issue of materials
Materials issued from stores
are
debited
to
the
jobs
or
work orders which received them and credited
to
the
materials account
...
But what is the value of
materials? Theoretically the value includes the invoice price less trade discount, the
freight, cartage, octroi and
insurance on incoming materials, expenses of purchase,receiving,
and record
and
storing
keeping
carriage
from the
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stores up to the process plant
...
There are many methods of pricing material issues
...
1) First in First Out (FIF0)
Under this method material is first issued from the earliest consignment on hand and priced at the cost at which
that consignment was placed in the stores
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The units in the
opening stock of materials are treated as if they are issued first, the units from the first purchase issued next, and so
on until the units left in the closing stock of materials are valued at the latest cost of purchases
...
But in case of rising prices this method is not suitable because the
issue price of materials to production will be low while the cost of replacement of materials will be high
...
2) Last in Last Out (LILO)
Under this method, issues are priced in the reverse order of purchase i
...
, the prices of the latest available
consignment is taken
...
Valuing material issues at the price
of the latest available consignment will help the management in fixing the comp
3) Simple Average Method
In this method, price is calculated by dividing the total of the prices of the materials in the stock from which the
material to be priced could be drawn by the number of the prices used in that total
...
4) Weighted Average Methods
In this method, price is calculated by dividing the total cost of materials in the stock from which the materials to be
priced could be drawn by the total quantity of materials in that stock
...
11
...
10+ 2000 x Rs
...
12 = Rs
...
33
1000+2000+3000
5
...
The quantity
is not issued unless otherwise there is an emergency
...
The earlier materials received are kept as a base and are valued at a price on which they are
acquired
...
It is used along with some other methods such as FIFO, LIFO, average
price method etc
...
Standard Price Method:
The issue price of materials is predetermined or estimated in t
method
...
The materials are priced at standard price
irrespective of prices paid for various purchases
...
7
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The market prices may either be replacement Prices or realisable prices
...
8
...
The control of labour cost and its accounting is very difficult a
deals with human element
...
Importance of Labour Cost Control
Labour is of two types (a) direct labour, (b) indirect labour
...
For example labour engaged in spinning
department can be conveniently allocated to the spinning process
...
The examples of indirect labour are supervisors,
sweepers, cleaners, time-keepers, watchmen etc
...
The distinction between direct and indirect labour must be observed
carefully because payment of direct labour is a direct expenditure and is a part of prime cost whereas payment of
indirect labour is an item of indirect expenditure and is shown as works, office, selling and distribution
expenditure according to the nature of the time spent by the indirect worker
...
T o use direct labour cost as a basis for increasing the efficiency of workers
...
T o 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 absoption of overhead
...
Time keeping
Time-keeping will serve the following purposes:
1
...
2
...
3
...
4
...
5
...
Methods of Time-keeping
There are two methods of time-keeping
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Whichever
method is used it should make a correct record of the time and the method should be cost effective and minimize
the risk of fraud
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The timekeeper records the name of the worker, the worker's number, the department
in which he is working, the rate of wages, the time of arrival and departure, normal time and overtime
...
This method is simple and inexpensive and can be used in small firms where the number of workers is not large
...
Metal Dise Method
Under this method, each worker is allotted a metal disc or a token with a hole bearing his identification number
...
These boards can be maintained
separately for each department so that the workers can remove the token without delay and put it in a tray or box
kept near the board
...
The tokens
or disc left on the board will represent the absentee workers
...
Mechanical Methods
The mechanical methods that are generally used for the recording of time of workers may be as follows:
(a) Time Recording Clocks
(b) Dial Time Records
Time Recording Clocks
The time recording clock is a mechanical device which automatically records the time of the workers
...
This procedure is repeated for recording time of departure for lunch,
return from lunch and time of leaving the factory in the evening
...
Dial Time Records
Under this method, a dial time recorder machine us used
...
There is one
radial arm at the centre of the dial
...
The sheet on which the time is recorded provides a running account of the worker's
time and it can calculate the number of hours and prepare the wage sheets
...
Time Booking
Time booking is the recording of time spent by the worker on different jobs or work orders carried out by him
during his period of attendance in the factory
...
To ensure that time spent by a worker in a factory is properly utilized on different jobs or work
2
...
3
...
orders
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4
...
5
...
6
...
Following documents are generally used for time booking:
1
...
Weekly Time Sheets
3
...
Daily time sheets are given to each worker where he records the time spent by him on each job or work order
...
Job cards are
used to keep a close watch on the time spent by a worker on each job so that the labour cost of a job may be
conveniently ascertained
...
This difference is known as idle time
...
(a) Normal Idle Time
(b) Abnormal Idle Time
idle time may be of under mentioned types:
a
...
Examples are:
i
...
; idle time normally arising between finishing of one job & beginning of the next
job
...
Loss of time on account of waiting for instructions, job, material, tools, power etc
...
b
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Thus idle time arising due to machinery breakdown, long time failure of power or
load shedding, sudden strike or lockout are abnormal idle time
...
For overtime done, the
workers are given double the wages for the overtime done
...
Overtime increases the cost of production and should not be encouraged as it has the
following
disadvantages
...
Overtime is paid at higher rate
...
Overtime is done at late hours when workers have become tired and efficiency will it be as much as during the
normal working hours
...
Workers will develop the habit of working slowly during normal hours and complete the work using overtime to
earn more wages
...
Expenseslike lighting, cost of supervision, and wear and tear of machines will increase disproportionately
...
The
system of wages should result into higher
production, improved quality
of output and
a
contented labour force
...
Fairness in paying wage
Reasonable wages should be paid to the workers
...
It is fair to both employers and employees
2
...
An employer should pay minimum wages to workers as per the provisions
minimum wages, an employer can fix the wages and guaranteed by considering the cost of living
...
Link Between EfTort and Remuneration
Remuneration is fixed only on the basis of the efforts required to complete such a job or order
...
4
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If so, there will be high morale and low labour turnover among
A wage system should satisfy t
workers
...
Conforming Trade Agreements
If
Some organizations may enter into an agreement with trade union regarding wage payment
...
6
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No worker
should make
many days
...
7
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This
the basis of output
...
, Hence, the
output level is fixed
for a specified time of working hours
...
Cost of Implementation
The cost of
must
implementation of wage system
be
as
low as
possible
9
...
If the situation
changes,
some
change may
be
incorporated
in the wage
system without much difficulty
...
(ii) Payment
on
the basis of the work done
done
...
This
piece rate system
...
This method is
or
monthly rate
...
Where
highly skilled
and
apprentices
are
working
...
Where quaity of goods produced is of extreme importance eg
...
Where the speed of work is beyond the control of the workers
...
Where close supervision of work is possible
...
Where output cannot be measured
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Workers are not motivated
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Workers will get payment for idle time
...
Eficient workers will become inefficient in the long run as all of them get same wages
...
Employer finds it difficult to calculate labour cost per unit as it varies as production increases and decreases
...
Strict supervision is necessary to get the work done
...
6
...
Ineificiency
It will encourage a tendency among workers to go slow so as to earn overtime wages
...
There are four variants of this system
...
Thus,
is
a) Straight piece rate system
b) Taylor's differential piece rate system
)Merrick's multiple piece rate system
d) Gant's task and bonus plan
(a) Straight piece rate system
Payment is made as per the number of units produced at a fixed rate per unit
...
Advantages
1
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
Fixing of piece work rate is difficult as low piece rate will not induce workers to increase production
...
Quality of output will suffer because workers will ry to produce more quickly to earn more wages
...
There may not be an effective use of material, because of the efforts of workers to increase the
production
...
Thus there will be more wastage of material
...
When there is increased production, there may be increased wastage of materials, high cost of supervision and
inspection and high tools cost and hence cost of production might increase
...
Increased production will not reduce the labour cost per unit because the same rate will be paid for all units
...
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6
...
7
...
8
...
9
...
10
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This method can be successfully applied when:
1
...
2
...
3
...
4
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The system is flexible and rates can be adjusted to changes in price level
...
Materials, tools and machines are sufficiently available to cope with the possible increase in production
...
Time cards are maintained so that workers are punctual and regular so that production may not slow down
...
Taylor advocated two piece rates, so that if a worker performs the
work within or less than the standard time, he is paid a higher piece rate and if he does not complete the work
within the standard time, he is given a lower piece rate
...
Under this method, three
workers with different levels of performance
...
Premium and Bonus Plan
The
object
of a
premium plan
or
as
production by giving an inducement to
premium plan, a standard time is fixed for
increase the
a
certain fraction of the time saved
hourly rate plus wages for a
incentive plan because a worker has
operation
also known
to
time worked
...
The
wages by completing the work
in
less time
...
In time wage
system, worker does
not
get any reward for the time saved and in
for time saved whereas in
a
premium plan
the worker gets full payment
share the labour cost of the time
piece work system,
both the worker and the
employer
saved
...
given wages for the actual time taken and a bonus
time for doing each job or operation is fixed
...
The standard
is
of the time saved
...
Under this
method also the workers are guaranteed the time wages but the bonus is that proportion of the wages of the time
taken which the time saved bears to the standard time allowed
...
Labour turnover can be evaluated b
relating the number of employees leaving their employment during a period of time to the total or average numbers
employed in that period
...
Example:
Let us assume that in a factory there were 2,000 employees on an average during the year 1990 and 100 persons
left the company during this period
...
Causes of labour Turnover:
Avoidable causes are
(i) Lower wages;
i) Bad working conditions;
(ii) Unsympathetic attitude of the management;
iv) Lack of opportunities for promotion;
(v) Lack of proper training
(vi) Improper manpower planning:
(vii) Lack of proper incentives;
(vii) Bitter relationship between management and workers;
(ix) Lack of conveyance, accommodation, medical and educational facilities and recreational amenities etc
...
They also leave their employment at their own will, that is, on personal reasons
...
So, unavoidable causes may be administrative or
personal
...
(i) Retrenchment or lay-off due to shortage of resources, low demand for recession
...
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