Labour Cost – Free Cost Accounting Articles

Labour Cost

MEANING AND CONCEPT

It is the second important element of the cost of production. Wages, salaries and other forms of remuneration represent a major portion of the total cost of a product or service. The growth and profitability of the concern depend upon proper utilisation of human resources or labour force, which in turn needs proper accounting and control of costs. Thus, control of labour cost is a very significant issue from the viewpoint of management.

If you want to learn more about this topic, you can watch the lecture below.

DIRECT AND INDIRECT LABOUR COST

The cost of labour can be classified into two types:
(1) Direct
(2) Indirect

(1) Direct Labour Cost

Any labour cost that is specially incurred for or can be readily charged to or identified with a specific job, contract, work order or any other cost unit is termed as direct labour cost. Wages for supervision, wages for foremen, and wages for labours who are actually engaged in operation or process are examples of direct
labour cost.

(2) Indirect Labour Cost

Indirect labour is for work in general. The importance of the distinction lies in the fact that. In contrast, direct labour can be identified with and charged to the job; indirect labour cannot be so charged and has, therefore, to be treated as part of the factory overheads to be included in the cost of production. For example, salaries and wages of supervisors, storekeepers, maintenance labour, etc

Merrick’s differential piece rate system:

This method is also known as the ‘Multiple piece rate system’. Under this method, three grade piece rates are used instead of two, as in the case of Taylor’s. The features are as follows:
(i) There is no guaranteed wage.
(ii) Standard time is fixed for each work.
(iii) Slabs are:
Up to 83.33% of the standard output-100% of ordinary piece rate.
Above 83.33% and up to 100% of the standard output -110% of ordinary piece rate.
Above 100% of the standard output- 120% of ordinary piece rate.

Inventory Turnover	Stock Levels
Overheads	Material Cost
Gantt Task Bonus Plan	Labour Variances – Standard Costing
Rowan Premium Plan	Standard Costing – Material Variance