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Labour Cost Accounting Methods

Chapter 4 discusses accounting for labour costs, focusing on remuneration methods such as time-related and piecework systems. It highlights the importance of incentive-based systems and outlines the costs associated with labour turnover, including preventative and replacement costs. Additionally, it introduces various labour ratios to measure efficiency, capacity utilization, and production volume.

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4 views4 pages

Labour Cost Accounting Methods

Chapter 4 discusses accounting for labour costs, focusing on remuneration methods such as time-related and piecework systems. It highlights the importance of incentive-based systems and outlines the costs associated with labour turnover, including preventative and replacement costs. Additionally, it introduces various labour ratios to measure efficiency, capacity utilization, and production volume.

Uploaded by

vishnukunnummal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 4 – Labour

Accounting labour costs

Accounting for labour costs

ACCA - Management Accounting


Rukmal Devinda


Remuneration methods
There are two basic approaches to remuneration

1. Time-related
2. Piecework related

Time related systems


This is the most common remuneration method. This calculates wages based on the
number of hours an employee works.

Piecework systems
A piecework system pays a xed amount per unit produced.

There are two main piecework systems.

1. Straight piecework systems – The same rate per unit is paid no matter how
many units are produced.

2. Differential piecework systems – This is the most widely used piecework


system and involves different piece rates for different levels of production.

Point to note

Within a piecework system, employees may receive a guaranteed minimum


wage despite the number of units produced. This is known as piecework with a
guaranteed minimum wage.

ACCA - Management Accounting


Rukmal Devinda

fi
Incentive based systems
Incentive schemes are designed to motivate employees at work.

Labour turnover
Labour turnover is calculated as

Costs of labour turnover


There are two main types of costs involved with labour turnover.

• Preventative costs: the costs involved in preventing employees from leaving


an organisation
• Replacement costs: the costs involved in replacing those employees who
have left an organisation.

ACCA - Management Accounting


Rukmal Devinda


Labour ratios

Ef ciency ratio

Measures whether the production output took more or less direct labour time than
expected.

Capacity utilisation ratio

Measures whether the total direct labour hours worked were greater or less than
budgeted.

Production volume ratio

Measures how the actual production output for a period (in direct labour hours)
compares with the budgeted output.

Relationship Between Labour Ratios

ACCA - Management Accounting


Rukmal Devinda




fi

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