Question & Answers-Accounting For Labor Costs


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

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