Labour Cost Accounting

Topics: Employment, Wage, Salary Pages: 8 (1370 words) Published: June 26, 2012
It is concerned with identifying the amount of labour costs to be changed to jobs and overhead accounts. Where a manufacturing organization operates a job costing system, information on the labour costs should be properly captured from the following documents:-

i) Job Cards: This is open for each job, when the job is started, the time of starting is entered on the job card and when it is completed, the completion time is also entered. The difference between the two is the time spent on the job on which time rate should be applied.

ii) Time Sheet: This analyses the time spent on the job. All the details relating to the time spent on the job showing factors such as; • Real job time
• Idle time
• Overtime.

(iii)Clock Cards: Employers whose wages are calculated on time basis will need to clock in and out of their work places. The clock number is assigned to each employee and on his arrival, his card is inserted in an automatic clock that prints the time of arrival. On departure, the card is again inserted in the clock and the difference between the two is the time in attendance which will be paid for in the appropriate rate. This system checks on late coming and absenteeism.

(iv)Wages Sheet (Payroll)
All the employees are listed on the wages sheet, alphabetically or in accordance to their serial numbers, the hours worked by each employee are entered on the wage sheet from the clock card and multiplied by the rate of pay. It contains gross pay;

• Overtime pay
• Basic pay
• Bonus and
• Any allowances and deductions such as NSSF, PAYE and advance.


|Employees |Time Worked |Pay |Deductions | |

No. |Name | |Basic |Overtime |Bonus |Gross |NSSF |PAYE |ADMN. |TOTAL |NET PAY |SING | |601 |John |50 |4,000 |15,000 |5,000 |60,000 |6,000 |10,000 |- |16,000 |44,000 | | |

(v)Employees Record Card: Contains basic information about the employee. The card is raised when the employee is being engaged and shows the history of the employee during his time in the organization, with details of appointment, title, rate of pay, promotions, transfers, etc. and the date of departure with their causes therein. vi) Piecework Tickets:

It is used where employees are paid on the piece rate and shows the number of units completed by each employee.

These are classified into 3 categories;
• Time based
• Output based (piece rate)
• Incentive schemes.

(i)Time rate: Employees are paid according to the time worked. It can be subdivided into the basic time rate, high day rate.

Basic time rate. In this method, the time worked by each employee is multiplied by the hourly rate to determine his/her wages.

High day rate: This is a scheme where the organization pays higher wages in the industry or geographical region. It attracts and retain high skilled workers.

Advantages of Time Rate:
• It is easily understood by employees and supervisors. • Minimum clerical work is involved and easy to administer. • The worker has no incentive to hurry the work leading to high quality of work. • Appropriate where the work is indivisible.

• Good system where recruits are being engaged as the piece rate would have limited their earnings.

• Provides no incentive to increase output
• Requires close supervision.

Overtime: When workers work beyond the normal time, they are paid for the extra time at extra rate called overtime rate. The addition on the basic hourly rate is the overtime premium.

Example: An employee paid an hourly rate of Shs.1,000 working normal hours of 28 a week produced 54 hours during the...
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