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MBB 3344: COST ACCOUNTING

CHAPTER 3: ACCOUNTING FOR LABOUR

Learning Objectives
•

•
•

•

Distinguish between the features of hourly rate and
piece-rate plans
...

Account for labor costs and payroll taxes
...


Agenda or Summary Layout
A second line of text could go here

1

DIRECT LABOUR

2

INDIRECT LABOUR

3

REMUNERATION
METHODS

4

LABOUR TURNOVER

5

LABOUR RATIOS

Direct and Indirect Labour
Basic pay

Bonuses, Idle time,
Sick pay, Overtime
premium

Direct
Labour
Indirect labour

Work in
Process
Production
Overheads

Remuneration Methods
Time related systems
Total wages
Basic pay per hour, plus overtime for extra
=
hours
(hours worked x basic rate per
hour)
+
Output related systems
(overtime hours worked x
Pay varies with output
...

For example,
Production
(units)
0 - 100
101 - 200
201 - 300

Rate of pay per unit
(RM)
1
...
75
2
...
In a week, the employee produces 220 units
...
50
1
...
00

(iii)
Earnings
(RM)
150
175
40
365

Controlling Labor Cost
•

•

The timekeeping and payroll departments
responsibility of maintaining labor records
...


Incentive Schemes
•

Bonus payment (individual / group)

•

To increase output, i
...
same number of employees

•

To reduce working hours, i
...
same level of production


...
This requires 900 direct labour hours
...

The company introduces an incentive scheme, in which it will pay
a bonus of 5% of the basic rate per hour worked if productivity
can be improved by 10% and either:
(a) The employees can make 10% more units each week in 900
hours,
(b) The employees can produce 1,000 units each week in 10%
fewer hours
...
00
= RM10,800
Cost per unit = Cost of direct labour ÷ Total units
= RM10,800 ÷ 1,000 units
= RM10
...
05
= RM11,340

Cost per unit = Total labour cost ÷ Total units (new)
= RM 11,340 ÷ 1,100 units
= RM10
...
80 – RM10
...
49

Incentive Scheme: Solution (b)
Total DLHs (new) = Total DLHs (old) × Decrease in percentage
= 900 DLHs × 90%
= 810 DLHs
Total cost of labour = Total DLHs (new) × Rate of pay per hour × Bonus
(in %)
= 810 DLHs × RM12 × 1
...
21

Decrease in unit cost = RM10
...
21
= RM0
...
The
expected production time is 3 direct labour hours for each unit
...


Calculate the labour efficiency ratio
...
g
...




A measure of the rate at which employees are leaving and
have to be replace

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