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WEEK 3

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Operation card (piecework tickets) -Time sheet (salaried labour) DOAIIUM. 6 ... 300 units of A; piecework time allowance 1.8mins/unit ... – PowerPoint PPT presentation

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Title: WEEK 3


1
WEEK 3
  • ACCOUNTING FOR LABOUR

2
LEARNING OBJECTIVES
  • Distinguish between labour cost accounting and
    payroll accounting
  • Compute the labour cost using three methods of
    remuneration time-based, output-based and
    Premium Bonus method

3
Labour Cost Accounting
  • identifies the amount of labour cost to be
    charged to individual jobs or products and
    overheads account
  • records the time spent by all labours on each
    activity on a separate time sheet (now being
    computerized) and apply the appropriate hourly
    rate
  • concerns with productive workers (direct labour)
    who are working in the production department

4
Payroll Accounting
  • records the amount due to employees, the IRB,
    pension funds, EPF etc for the labour services

5
Recording the Labour Costs
  • Attendance time
  • -attendance records
  • -signing in log book
  • -clocking card (punch card)
  • Job time
  • -daily/weekly time sheets or job cards (job
    costing)
  • -Operation card (piecework tickets)
  • -Time sheet (salaried labour)

6
Classification of Labour Costs
  • Direct Labour Costs
  • Basic pay of direct workers
  • Overtime worked at specified request of customer
    to get order completed
  • Overtime worked regularly by production
    department in normal course of operations
  • Indirect Labour Costs
  • Basic pay of indirect workers
  • Overtime premium paid to direct and indirect
    workers
  • Bonuses
  • Cost of idle time
  • Wages of support staffs

7
Methods of Remuneration
  • Time-based scheme
  • Output-based scheme
  • Premium bonus scheme

8
Time-based Scheme
  • Paid for the number of hours worked at a basic
    rate per hour
  • Wages hours worked x rate of pay per hour
  • Overtime premium extra rate per hour for hours
    over and above basic hour
  • Suitable for
  • Work where quality of output is all important
    than quantity
  • Work where incentive scheme would be difficult or
    impossible to install eg direct labour, store
    assistants, clerical work etc
  • Work where the output level is not under the
    employees control e.g power station worker

9
Advantages vs Disadvantages
  • Advantages
  • - simple to administer
  • - easy to understand
  • Disadvantages
  • - No productivity incentive
  • - Employees are paid for time rather than
    output
  • - A high level of supervision is required
  • - Highly motivated workers are required

10
Illustration
  • Ali works 8 hours shift daily for at RM8 per
    hour. He is required by his supervisor to work
    overtime for 2 hours daily due to high demand for
    the products. The rate for the overtime is 50
    more than the normal pay rate.
  • Required
  • Calculate his daily pay.

11
Output-based Scheme
  • Payment based on an agreed rate per unit for the
    number of units produced/ operations performed
    (also known as straight piecework)
  • Wages units produced x rate of pay per unit
  • Guaranteed minimum wage rate are normally
    offered.
  • The minimum wage is paid in cases where employees
    fail to reach minimum level or to safeguard when
    there are delays, shortages, machine breakdowns
    etc

12
Advantages vs Disadvantages
  • Advantages
  • - increases production
  • - increases employees remuneration
  • - reduce unit costs
  • - improve competitive position of the company
  • Disadvantages
  • - complex to administer
  • - difficulties in agreeing the remuneration per
    unit of output
  • - difficulties in determining a unit of output
    in a service organisations

13
Illustration
  • Abu is paid 50 cents per unit. He worked 160
    hours for the month of April and produced 1500
    units. The guaranteed wage rate is RM6 per hour.
  • Required
  • Calculate Abus wage for the month of April.

14
Illustration
  • 300 units of A piecework time allowance
    1.8mins/unit
  • 150 units of B piecework time allowance
    1.5mins/unit
  • 100 units of C piecewok time allowance
    2.2mins/unit
  • Piecework rate 10 cents per minute produced
  • Required
  • Calculate the gross wages.

15
Premium Bonus Method
  • Workers are paid a normal day rate plus a bonus
    calculated upon the difference bet. the time
    actually taken for a job and a notional time
    (time allowed)
  • A time allowance (standard time) is set for a
    particular job, and a bonus is paid on the basis
    of time saved
  • An extension of time-based scheme
  • 2 methods to compute the total pay
  • Halsey Method and Rowan Method

16
Premium Bonus Method
  • Halsey Method
  • ½ x time saved x hourly rate
  • Rowan Method
  • (Time taken /time allowed) x time saved x
    hourly rate
  • where time saved time allowed time taken

17
Group Incentive Scheme
  • Appropriate where production is
  • Based on a group basis e.g.. road surfacing
  • Integrated and all efforts are directed towards
    the same end e.g. all forms of production line
    manufacturing cars or domestic appliances
  • Infeasible to measure individual performance

18
Advantages vs Disadvantages
  • Advantages
  • Encourage closer cooperation in the group and a
    team spirit
  • Administratively simpler (less recording of
    labour times, production rates etc)
  • Support workers not directly associated with
    production can be included in the scheme
  • May encourage more flexible working arrangements
  • Disadvantages
  • Less direct may not provide the same incentive
  • Less hardworking members will get the same bonus
    lead to a friction
  • Not always easy to obtain agreement on the
    proportion of bonus which group members will
    receive

19
Illustration
  • A company that manufactures hand phones
    implements the premium bonus scheme method in
    paying the wages of its labour. The details of
    the scheme are as follows
  • time allowance per unit is 2 hours per unit.
    Employees are paid RM1.80 per hour.
  • 50 of time saved is credited as bonus
  • In a 40-hour week, workers A, B and C produces
    15, 20 and 25 units respectively
  • Required
  • Calculate the total wages of A, B and C using
    the Rowan and Halsey scheme.
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