Defining Labor Costs, Labor Costing and Control Assignment Help, Cost Accounting

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The labor costs, which are involved in production and a manufacturing account for a significant percentage of any organization’s budget. Various challenges the workforce management face are payroll errors, buddy punching, accidental over payments etc which contribute to the driving up of the labor costs. Factors which are involved in loss of productivity are unnecessary manual processes, scheduling conflicts and human errors which can lead to eating up of the bottom line.

The workforce management system must be able to control the challenges that impact labor costs and no wastage of time and money should be done on unnecessary expenses which impair the business.

The aim of any organization is to keep the wages costs per unit at the minimum level possible. This is achieved by giving the labors the minimum wage and by harnessing their energies to maximum for optimizing output.

Collection of the labor costs

They role of the cost accounting department is to record the wages separately which are paid to the direct and indirect labor. The wages of each department is categorized into-

1. The amount which is included into the direct cost of goods which are produced or the jobs which are completed.

2. The amount which is treated as indirect labor and therefore included in the overhead.

3. The amount which is treated as the cost of idle time (the loss).

Labor material is also controlled by the accountant, but the methods adopted differ from that of material control. For example by decreasing the number of laborers and their wages, the cost of labor increases as lesser number of laborers produce less output, thereby increasing the cost.

Factors affecting labor costs

1. Assessment of man power requirement

The correct assessment of various manpower requirements decreases the cost of labors required. The personnel department has the responsibility of accessing the manpower requirements.

2. Time and motion study

The job of the supervisor is to record the time spent on each job and also collects the records. This helps in reducing the excess amount paid for giving overtime to workers.

3. Controlling of over time and overtime

The idle time is the time when a worker is not indulged in any production activity. The various reasons for this can be a delay in receiving materials of the electricity cuts or any unexpected other situation. This results in loss of business and also increases the cost of labor. If you continue the supply of raw materials, regularly conduct review and repair of machines, and have taken measures for regular supply of electricity, you can reduce idle time. Many a times these factors are not controlled by us and we depend on other sources external to the organization for fulfilling of our needs.

Important factors contributing to the control of labor costs

For effective control of labor costs, there are some main points which need consideration.

1. Control over time and book keeping. 2. Assessment of manpower requirements
3. Control over overtime and idle time
4. The time and motion study
5. Systems of wage payment and incentives
6. Wage systems
7. Incentive systems
8. Labor productivity
9. Control over casual, contract and other factors,
10. Job evaluation along with merit rating.
11. Attendance and payroll procedures

Time keeping is the record of total time spent by the workers while they are in a factory and time booking is the break up time on various jobs. Time keeping is done in order to prepare payrolls, for calculating overtime, for assertion and controlling of labor costs, of ascertaining of idle time, for disciplinary procedures as well as for overhead distribution. Time keeping is done by manual and mechanical methods.

The payroll procedure

Various steps which are including in a payroll procedure are:

1. Number of hours worked.
2. The list of employees.
3. Computation
4. Investigation

The wage system

The allocation of wages should be done at competitive prices. Fluctuations in wages provided can disturb the workers. These wages can also be given on the basis of time or units produced.

Control over labor turnover

Low labor turn over can result if good wages are not provided, no incentives supplement the salary, and some other reasons also. Hence the labor turnover should be optimum with the amount of production undertaken.

The system has to track the following various production costs for discrete work orders along with repetitive schedules. These include materials, material burden, internal labor, tool/machine chargers, external labor, machine overhead, labor overhead, setup and setup labor overhead.