Question & Answers-Accounting For Labor Costs

Questions

1. Give details of the effect of high labor turnover on costs & show the steps that could be taken in an effort to reduce cost

2. Describe the various method which could be employed in a factory to record attendance time and the time spent on individual job.

3. Relate the functions and procedures of a Wages Department and a Cost Department in respect of accounting for payment of labor and the distribution of labor costs.

Answer to Question No 1:

1. Effect of high labor turnover on costs are:

• High unit costs due to low output

• Excessive cost of scrap and spoilage

• Low output requiring overtime and extra costs in order to meet production targets

• Trainees and inefficient workers increase the costs of tools and the wear and tear on machines

• High training and recruitment costs

Steps are:

• Improve morale by better training and improved working conditions

• Provide financial incentives for increased output and improve promotion prospects

• Ensure that welfare facilities are adequate and arrange for social activities

• Transmit information by good communications and improve relations by allowing participation in suitable areas of the business.

Answer to Question No 2:

2. The various methods include:

• Attendance time

• Activity or job time

• Time sheets ( daily or weekly )

• Day-work and Piece-work cards

Answer to Question No 3:

3. Following relationships between Wages Department and Cost Department:

• Calculation of cost of day-work operations;

• Method of calculating operations performed on a piece-work basis;

• Reconciling attendance time with total time recorded on job cards for individual employees;

• Calculation of wages payable on each job card;

• Calculation of overtime premium and shift premium

• Preparation of Payroll and payment of wages – gross wages, deductions, net wages and cash analysis, payment by cash, cheques, bank credit,etc;

• Analysis of wages into direct and indirect wages- production costs, manufacturing overheads and capital expenditure jobs

• Reconciling wages analysis with total gross wages