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1. 2. 3. 4. 5. Remuneration methods Labour cost behavior Recording labour costs Cost accounting for labour cost Labour turnover

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Methods of remuneration The correct choice of labour remuneration in a business is very important for 2 main reasons: 1.The remuneration method may have a major impact on the cost of finished products or services. 2.The morale and efficiency of employees can be affected by the remuneration methods in operation.
Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

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Time based systems These are based on the principle that an employee is paid for the hours attended Wages payable = Hours worked X Rate of pay per hour

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The idea is that it is the managements duty to ensure that work is carried out by employee during these periods of attendance at the workplace. The wages earned are then computed by multiplying the number of hours by the agreed hourly wage rate.

Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

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It is common for this system to be supplemented by the payment of a higher rate per hour for working hours in excess of the normal working week. This is known as overtime and it is commonly paid at a premium of between 25% and 100% above the normal hourly rate.

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A time based method of remuneration is often used where: a) the output is difficult to measure, such as in administrative functions b) activities vary considerably, such as repairing machinery c) quality of output is extremely important and to use other systems might encourage employees to give priority to the speed of output.

Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

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Piecework systems These are based on the principal that an employee requires encouragement to work and consequently is paid by reference to the units of output produced. In these system it is necessary to record the amount of work done by each employee but the amount of attendance time is less significant. A piecework system is used when quantity of output is important and the quality control can be satisfactorily maintained by other management techniques.

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Piecework systems These are based on the principal that an employee requires encouragement to work and consequently is paid by reference to the units of output produced. In these system it is necessary to record the amount of work done by each employee but the amount of attendance time is less significant. A piecework system is used when quantity of output is important and the quality control can be satisfactorily maintained by other management techniques.

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Bonus schemes Bonus schemes were introduced largely to compensate the workers paid under a time based system for their ability to increase earning by working more efficiently. Whereas piecework earning could increase their earnings by becoming more efficient unless some form of bonus systems exists.
Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

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All bonus schemes are similar. They rely on the setting of a target and the comparison of actual performance with that target. The savings which result from the employees greater efficiency are then shared between the employees and the employer.

Cost Accounting ABMC2513 Lecture 04 Chan Sai Meng

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OTHER METHODS OF REMUNERATION SYSTEMS Guaranteed minimum wage A guaranteed minimum wage applies to piecework based remuneration systems. It protects employees by guaranteed minimum weekly wage based on an hourly rate multiplied by the employees number of attendance hours. This is only applied if the level of piecework earning is below this guaranteed minimum level

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Differential piecework rate Using this system, a target of units is set and different rates per unit are paid depending upon the total number of units achieved. Usually a daily target is used. Example: RM Units produced in a day 1-100 units 0.45 each 101- 129 units 0.50 each 130- 149 units 0.55 each 150 units and above 0.60 each

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Labour cost behaviour When employees are paid on a piecework basis, their pay is a variable cost. When employees are paid a basic day-rate wage, their pay per week is fixed regardless of the volume of the output. Because of the productivity bonuses, overtime premium, commission and so on, labour costs are often mixed costs .

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Recording labour costs Clock cards A clock card is a document on which are recorded the starting and finishing times of an employee. This may be done manually or by insertion into a time recording device.

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Piecework/ Bonus Tickets The piecework method of remuneration and the operation of bonus schemes require an analysis of the activity of each employee during a particular pay period in order to determine the amount of gross wages payable. Piecework/bonus tickets are used in order to determine the amount of piecework earning or the amount of bonus earning payable to an employee.

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Time sheets A time sheet is used to analyze the attendance time of an employee over the tasks which have been completed. This analysis should also include idle time and other non-productive periods. This may be done on a daily or weekly basis.

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Accounting for the cost of labour Overtime earning This overtime premium may be caused by the specific request of a customer who requires a job to be completed early or at a specific time, or may have resulted because of the organizations need to complete a work which would be finished without working overtime.

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In the situation caused by the customer, the customer should be advised that the overtime would be required to be charged to them as they can be directly attributable to the job and clearly identified. They are considered as

direct cost.

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In general circumstances, the cost of the overtime premium is regarded as indirect cost, even though the premium is paid to the direct workers, because it cannot be identified with a specific cost unit.

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Bonus earning The earning of bonus, if paid on an individual task basis, can be clearly attributable to a particular task and so would be direct labour of this task. If the bonus system accumulates the total allowable time and hours worked for a particular pay period and then calculates the bonus based on these totals, then any bonus will be treated as indirect cost.

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Idle time Idle time payments are made when an employee is available for work and is being paid, but is not carrying out any productive work.Idle time can arise of various reasons including machine breakdown, lack of orders or insufficient materials.Idle time are treated as indirect cost in the analysis of wages.
a) b) c) d) e) f) g) h)

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Labour turnover - Reasons Better pay Illness or accidents A family move from the locality Marriage, pregnancy or child care Retirement or death Employees are working in unsafe or stressful conditions Long hours of work Lack of opportunity for career enhancement

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Cost of Labour turnover a) b) Preventive Costs Replacement Costs

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Preventive Costs These are costs incurred in trying to keep employees in their jobs. Cost of personnel administration incurred in maintaining good relationship Cost of medical services Cost of welfare services Pension scheme providing financial security to the employees

a)

b) c) d)

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Replacement Costs These are costs incurred as a result of hiring new employees. a)Cost of selection and placement b)Inefficiency of new labours, productivity may be low c)Cost of training d)Increase in wastage and spoilage due to lack of expertise.

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Prevention of High Labour Turnover a) Paying satisfactory wages b) Offering satisfactory hours and condition of work c) Creating good informal relation d) Offering good training scheme e) Proper planning as to reduce redundancies f) Provide benefits such as company car, staff discount and so on.

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Labour turnover is a measure of the number of leavers relative to the size of the work force. Number of leavers X 100% Average workforce
NO: DAY MONDAY IN

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CLOCK CARD
CLOCK CARD NAME: OUT IN OUT TOTAL HOURS

TUESDA Y WEDNES DAY THURSD AY FRIDAY

SATURD AY SUNDAY

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Weekly Time Sheet
For office use To be completed by employee

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From the following information, calculate for each employee his earnings using:
Amount $

Day

Start

Finish

Job

Code

Hours

Employees Actual hours worked Hourly rate - RM Output in units - X Output in units - Y Output in units - Z

38 6 42 72 92

36 4 120 76 -

40 34 5 8 120 270

50 -

Supervisors signature

Gross wages

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Standard time allowed (per unit) X - 6 minutes, Z - 15 minutes. Y - 9 minutes,

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Question .
a) b) c) From the following information, calculate for each employee his earnings using: guaranteed hourly rates only (basic pay). piecework, but with earnings guaranteed at 75% of basic pay where the employee fails to earn this amount, premium bonus in which the employee receives two thirds of time saved in addition to hourly pay.

Each minute earned is valued at RM0.10 for piecework calculation.

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ANSWERS

a) RM228, RM144, RM200, RM272 b) RM228 RM140.40 RM150 RM315 c) RM228 RM144 RM200 RM370.67