LABOUR COST

1.Distinguish between direct and indirect labour?

Direct Labour is that labour which can be conveniently identified and
allocated wholly to a particular job, product or process. It is the labour
directly employed on production work. In short, direct labour includes all
labour expended in converting raw materials into finished goods or in
altering the construction, composition or condition of the product. It varies
directly in relation to the volume of output.
According to Wheldon, "Direct Wages are incurred in altering the
construction, composition, conformation or condition of the product".
Payment of the following groups of labour fall within the definition of
direct wages:
i. Labourers engaged in altering the condition, conformation and
composition of the product.
ii. Inspectors, analysts etc. specifically required for such production.
iii. If specifically identified, the wages of foremen, charge hands, shop
clerks, the wages of internal transport personnel etc.
Indirect labour is one, which is of a general character and cannot be
conveniently identified with a particular job, product or process. It aids
and facilitates production work indirectly.
According to ICMA, "Indirect wages are wages which cannot be allocated
but which can be apportioned to, or absorbed by, cost centres or cost
units".
(In general, salaries or wages of the following are treated as indirect
wages. Foremen, supervisors, charge hands, inspectors, general labour,
maintenance labour, works clerical staff, watch and ward, Indirect labour
in drawing and design office, internal transport, tool room and other
services.
The distinction between direct and indirect labour is relative to each
particular firm or industry )
2.Briefly describe the various methods of recording attendance of
workers in industries?
Time keeping is the recording of each worker's time of coming in and
going out of the factory for the purpose of attendance and wage
calculations. The main purpose of time keeping is to provide data for:

i. Attendance records (to meet statutory requirements).

ii. Preparation of pay rolls,
iii. Labour cost of an operation, product or service.
iv. Overhead distribution
v. Statistical analysis of labour records for determining productivity and
control of labour costs.
vi. To enforce discipline.
The methods can broadly be classified into two categories:
1. Manual methods 2. Mechanical methods.
Manual Methods.
Under this, there are mainly two methods, which are in use.
i. Attendance Register or Muster Roll: Recording attendance time in a
Muster Roll has been the oldest method. The Register consists of a number
of columns to facilitate entries regarding names (of workers), badge
number, department, nature of work, time of arrival and departure etc. The
timekeeper sitting at the gate recording the arrival of each worker may fill
in this register. Workers may be asked to sign the register noting down
their in and out time.
Merits:
This method is simple to operate. It is an inexpensive method also. But it
can be used in small factories.
Demerits:
The success of this method depends upon the accuracy of the record, which
in turn, depends upon honesty, and integrity of the workers and the
timekeeping staff.
ii. Token Method or The Check Disc Method: Under this system, every
worker is allotted a disc or token bearing his identification number. On
entering the factory, the worker takes his numbered check from a board and
drops it into a box. This box is removed at the end of the grace period and
another box is substituted for latecomers. This box is also removed at the
end of the maximum late period allowed. The gatekeeper or time clerk
makes necessary entries regarding attendance of the workers in the time
book. This time book is then passed on to the wages office for the purpose
of recording times in connection with pay roll Preparation
Mechanical Methods.
1.Time Recording Clocks: Under the mechanical methods, time clocks are
used to record the worker's attendance. In this system, the attendance is
recorded on a clock record. Every worker is allotted a card, which bears

the worker's identifica tion number. These cards are kept in racks lying
outside the factory gate. There are usually two racks denoting out and in
racks. When a worker enters the factory, he takes his card from out rack
where these are arranged serially, puts it in the slot of the clock, presses a
handle, takes the card out and then keeps it in the in board again. This
process is reversed when he goes out of the factory i.e., he punches the
departure time and places back his card in the 'out' rack. The cards left on
the 'out' racks indicate absent workers.
Merits:
1.It provides for correct recording of attendance.
2.Chances of false and fraudulent entries are reduced.
3.Work in connection with the preparation of wage sheets becomes quite
easy.
Demerit:
It needs quite heavy capital investment in the beginning.
S pecial Types Of Time Clocks .
i. Dial Time Recorders : Dial Time Recorder consists of a mecha nism with a
dial having a number of holes about the circumference. When a worker
enters the factory, he presses the dial arm into a hole, which denotes his
particular number, and the time is recorded automati cally on an attendance
form placed inside. This form will contain the numbers and names of all
the workers, one below the other with columns for entry and exit timings of
each day.
ii. Key Recorder System : This is a mechanism with a number of keys, each
key bearing the number of a worker. When a worker enters the factory, he
inserts his particular key in the keyhole and gives a turn, the ticket number
and the clock time are recorded on a sheet of paper.
Merits:
Under both these methods, there is no need of copying out the record
because the paper kept inside the clock forms part of the payroll
Demerits:
i. Workers' time of arrival and departure are widely separated on the paper
and calculation of time becomes cumbersome.
ii. A worker is not able to see for himself whether the correct time has
been recorded and it may lead to some dispute later on.
iii. The capacity of these two devices is quite limited as the number of
holes and keys is about 150.
3.What is time booking? What are the various methods of time booking?

Time booking is a process of recording the time spent by a worker on

different jobs carried out by him during his period of stay in the factory.
Objectives of Time-booking .
i. To ascertain the cost of work done.
ii. To ensure that time for which worker has been paid is properly utilised
or to ascertain labour efficiency,
iii. To provide a basis for the apportionment of overheads
iv. To ascertain Idle Time (i.e. the difference between the Gate Time and
the actual work time of the workers) so as to control it.
Methods of Time Booking .
Time booking may be done manually or mechanically depending upon the
size of the organisation.
Time booking involves the recording of starting .and closing timings of
work by every worker in respect of every job so that the time spent over a
Job may be assessed. The recording may be done in various types of
forms. The recording work may be given to the workers themselves,
foremen or time-keepers kept specially for this purpose
The following are the methods:
1) Daily Time Sheet System:
This is a daily record of the work done by a worker, showing the jobs on
which he worked and the time spent against each. One sheet is allotted to
each worker and a daily record is made therein. This can be used in small
organisations where the number of workers as well as the No. Of jobs are
small.
Merits:
i. It keeps a moral check on the worker and the wastage of time is avoided
on the job or between the two jobs performed during the day, as the work
timings are recorded.
ii. A verification of correct timings spent on a job is available for costing
as the foreman signs the sheet.
iii. A worker's efficiency can be judged from day-to-day.
Demerits:
i. It needs a lot of paper as considerable amount of time will be involved in
preparing time sheets and in consolidating these for the purposes of
ascertaining labour cost.
ii. It is useful only in case where the worker has to move from job to job
2) Weekly Time Sheet.
It contains almost the same details as are given in the Daily Time Sheet

excepting that the days of the week are also given as it is submitted weekly
instead of daily. One sheet is allotted to each worker and this sheet
contains the information for a complete week. The infor mation is required
to be entered promptly in the sheet; otherwise there are chances of errors
occurring in recording job timings. The weekly Time Sheets are used for
intermittent jobs and for contract costing, e.g. decorators, builders etc.
Merits:
i. It reduces the volume of the clerical work, as the sheet happens to be
weekly.
ii. It is useful for the intermittent jobs or for contract purposes.
iii. By examining the sheet, the foreman can find the amount of work done
on the job by a worker and by all the workers of his department, taken
together, during the particular week.
Demerits:
i. The entries regarding timings may not be accurate.
ii. This method is not suitable where the jobs worked happen to be so
many.
3) Job Cards Or Job Tickets Or Job Time Reports.
A card is prepared for each job or operation with or without the details of
work to be done entered therein in advance. This card is allot ted to each
worker-whenever a worker takes up a particular job. Worker enters in this
card the time of starting the job as well as time of finishing the job. The
entries in the job card may also be made with the help of machines like
time recording clocks.
Job card also serves the purpose of an authority to the worker to carry out
the operations noted therein.
Job cards are of two types:
1.Departmental Job-Cards
2.Circulat ing job cards.
In the case of a departmental job card, a separate card is maintained for the
work to be done over a job in each department. Once the work is over, it is
sent to the costing department. The card may also be maintained for each
worker separately.
In the case of a Circulating Job Card, there is only one card for the whole
job irrespective of the number of departments through which the job will
pass. The card will keep on circulating from department to department as
the job moves till the job is completed.
4) Combined Time And Job Card.
This is a card showing combined information regarding attendance-time

and the time booked to the jobs. In this case, reconciliation of gate time
and work-time becomes easy.
5) Piece Work Cards.
The piece-workers are paid on the basis of units produced or job done by
them (and not on the basis of the time taken by them). Piecework card is
used where workers are paid on piece-rate system. A piecework card is
allotted to each piece-worker. A card may be maintained for each job
separately or alternatively one card may serve the purpose of recording the
work done on several jobs.
4.What is the necessity of recording time for attendance and time spent
on work done in the factory?
i. Time keeping (recording of the attendance time or gate time) is
necessary in order to have a correct record of attendance to meet statutory
requirements.
ii. In the case of Time Rate System, it is essential to have a record of the
time put by workers for preparation of the Payroll.
iii. In the case of Piece Rate System, the record of attendance helps to
enforce discipline so that workers are in time.
iv. Time Booking (recording of the time spent by each worker on a job or
jobs) is essential to calculate the cost of labour chargeable to the job.
v. It will also be useful in recording the amount of overheads (if the
absorption of overheads is based on wages or labour hours.)
vi. The two records enable a better analysis of idle time and also suggest
some remedies.
vii. The practice of putting bogus workers and errors in recording of time
can be detected easily by recording the two records of attendance.
viii. These two records are helpful in preparing the budgets for labour and
in setting up labour standards.
5.What is a Wages Abstract?
Wages Abstract is a summary prepared weekly or monthly showing the
amount of time spent by workers on different jobs. This shows an analysis
of wages paid during a period of time on different jobs. The wages Abstract
is a medium of allocation of labour cost to different jobs.
6.Write a note on casual workers?
Casual workers are workers who are employed on a purely temporary basis
either daily or for short periods in order to meet increase in production or

as a replacement for the absentee workers. Such workers are known as

casual workers (or Badlies) because they are not regular workers of the
organisation.
A special cash float may be maintained. The wages paid to such workers
should be charged directly to that particular job. Generally, casual workers
are untrained and inexperienced. Hence, strict supervision and control is
required to be exercised over their work.
7.Frauds in time recording and booking and wage disbursements are
common. List them and suggest various internal controls necessary to
eliminate them.
The-types of frauds generally encountered in a system of wage payment are
as follows:
1Showing dummy workers on the Payroll.
ii.Making an absent worker as present
iii)Ignoring to mark late arrivals or early departures.
iv)Inflating rates of wages or showing a higher grade of pay.
v)Inflating piece rate or showing higher job value. ;
vi)Booking of fictitious overtime.
viii)Omission to record deductions.
ix)Inclusion of bonus not due.
x)Manipulation in computing wages.
IDLE TIME
What is idle time? Give reasons for idle time. How do you treat idle time in
cost accounting?
Idle time may be defined as that time for which wages are paid but no
production is obtained. This is the time, which cannot be attributed directly
to any productive work. When workers are paid on time basis, some
difference is likely to arise between the time for which they are paid and
the time they actually spend upon production.
Causes : Factors responsible for idle time may be grouped under four
heads.
I. Productive causes,
ii.Administrative causes,
iii.Economic causes.
iv.Other causes.
i. Productive causes.
Productive causes refer to those causes connected with production. For

example, Idle time due to machine breakdown, Power failures, waiting for
work, waiting for tools and raw materials, waiting for instructions. In all
the above cases, proper plan ning in advance can control idle time. But it
cannot be avoided completely as some idle time is bound to occur in setting
up the machines, adjusting the tools, moving from one machine to another
machine. The causes of idle time should be properly analysed and
responsibility should be put on the appropriate persons to control it.
ii. Administrative Causes :
Administrative causes include those causes, which are due to the
administrative decisions of the management. E.g. 1. In case of a surplus
capacity of plant and machinery, management may decide not to work fully
and there may be some idle time. 2. In times of depression, machines may
have to work below normal capacity without retrench ment of trained
workers. Therefore such idle time arises out of abnormal situations and it
cannot be controlled.
iii. Economic Causes:
Idle time may arise due to seasonal nature of industries. Eg. In the case of
woolen goods, ice cream industry, production cannot be evenly distributed
through out the whole year. It is not possible to employ a number of
workers in the busy season and to leave them during slack season. Such
idle time is also beyond control.
iv. Other causes:
Other causes include strikes and lockouts, fire, floods, storm, earth quake
etc.
CLASSIFICATION AND TREATMENT OF IDLE TIME.
From the point of view of treatment in cost accounts, idle time can be
classified into two categories. They are 1. Normal Idle time and 2.
Abnormal Idle Time.
Normal Idle Time :
It refers to that loss which is generally unavoidable. Eg. Time spent in
setting the machines, adjusting the tools, moving from one job to another,
tea breaks, personal needs etc. This wastage of time is of such a nature that
it cannot be avoided and its cost is an expense, which the employer must
bear.
Treatment: Cost of normal idle time is treated in one of the fol lowing
ways:
i. It is directly charged to factory overhead account.
ii. Wage rate may be, inflated so as to make allowance for normal loss of
labour time.

Abnormal Idle Time:

Where, due to some causes in no way connected with the usual routine of
manufacture, time is lost for which employer must pay, the time wasted
represents abnormal idle time. It is mostly unavoidable particularly when it
is attributable to inefficiency or defective planning. Eg. Machinery
breakdown, power failure, strikes, delay in material supply.
Treatment: Cost of abnormal idle time should be collected separately and
written off to Costing Profit and Loss Account.
OVERTIME
What is overtime and how is Overtime treated in cost accounts?
The time worked over and above the normal hours is Overtime. The
remuneration usually paid for the overtime work is at double the normal
rate. The factories Act, 1948 provides for payments of overtime wages at
'double the normal rate of wages. The payment of overtime consists of two
elements viz. one for normal (ie. the usual amount) and the second extra
payment.
Overtime work involves extra cost and should be resorted to only |when
extremely essential.
Disadvantages of Overtime Working :
I. It generally leads to decrease in productivity because of diminishing
efficiency during late hours.
ii.It leads to unusual strain on plant and machinery,
iii.It has a bad effect on the health of the workers,
iv.It leads to excessive labour cost.
v.Overheads like lighting cost may increase because of working in the late
evenings.
Treatment of Overtime Cost:
The treatment of over time depends upon the circumstances under which it
arises.
I. Where the customers agree to bear the entire-charge of overtime due to
urgency of work, it should be charged direct to the job or work o rder
concerned.
ii. When overtime work is required to makeup any short fall in production
due to some fault of management or some unexpected development, it
should be charged to costing Profit and Loss Account.
iii. Overtime required because of some abnormal conditions like floods,

earthquakes etc., should be charged to costing Profit and Loss Account.

iv.Overtime required for seasonal pressure should be taken either as
general overhead or as deferred expenses for absorption equitably over the
entire production.
Control of Overtime :
For the control of overtime, the following steps may be taken.
i. All the overtime work should be duly authorized by the competent
authority.
ii. Overtime cost should be recorded separately in order to investigate and
to have proper planning for future.
iii. If overtime work becomes a regular feature due to shortage of labour,
recruitment of labour should be considered.
iv. When overtime becomes a regular feature due to shortage of plant and
equipment, steps may be taken to install additional machinery.
v.Overtime work should be allowed only under unavoidable circumstances.
LABOUR TURNOVER
What is labour turnover? How is it treated in Cost Accounts?
In every industry, workers leave their jobs and new workers have to
be.appointed to replace them.Labour Turnover is an index denoting change
in the labour force for an organization during a specified period. CAUSES
OF LABOUR TURNOVER.
A minimum level of labour turnover is normal and inevitable. It is also
desirable and good for the health of the industry. The problem is of
excessive labour turnover, i.e., when the workers leave because of
abnormal reasons. The causes of high labour turnover may be classified
into two categories : 1. Avoidable causes 2. Unavoidable causes.
1. Avoidable Causes :
i. Dissatisfaction due to various causes such as Hours of work, Improper
placement,Unfair method of promotion,Bad relationship with supervisors or
fellow workers e. Bad training facilities.
ii.Lack of safety measures,
iiiLow wages.
ivRedundancy due to seasonal fluctuations, contraction in the market or
lack of proper planning.
2. Unavoidable Causes:
i.Change of service for personal betterment,
ii. Ill health or old age or death.

iii.In case of female employees, domestic responsibilities, pregnancy or

marriage.
iv.Discharge on disciplinary grounds.
MEASUREMENT OF LABOUR TURNOVER .
Labour Turnover is measured by applying any one of the following three
methods:
1. Separation Method:
Number of employees left during a period
----------------------------------------------X100
Average number of employees during the period
2. Replacement Method :
x100
No of replacement in the period
X100
Average No.of employees during the period
3. Flux Method :
No. Of separation + No. Of Replacements X100
Average No. of employees during the period
EFFECT OF HIGH LABOUR TURNOVER.
High labour turnover results in low productivity and increased cost of pro duction.
LABOUR PRODUCTIVITY
Define labour productivity. How can it be measured? What are the steps
required to increase labour productivity?
Productivity is the ratio of output per unit of input. It is an index of
efficiency. Labour productivity refers to its power to produce. The output
may be expressed in terms of quantity, sales value, or cost and the input
may be expressed in terms of quantity, weight of materials, hours worked
etc. Measurement:
Labourproductivity can be measured in several ways. Some of the methods
are:
i. Output per man-hour: Where output is un/formwith regard to quality and
design, productivity may be measured as follows :
Labour Productivity = T ot a l Q u t P u t
Total man-hours.
ii. Labour hours per unit of production : This index is the reciprocal of
output per man-hour. It is calculated as below

n ^ * *
Total labour hours Productivity =
Total Output
When the products are not uniform, the overall productivity can be
measured by this method if different types of output can be expressed in
some common unit (say weight).
* iii. Actual time compared with standard time: Where output consists of
different types of products consuming different amount of time :
, , j **/

\
Production in standard hours
Labour productivity (le. efficiency ) = T :r-r:-;
p
y v
y
,
'
Actual hours worked
iv. Extent of Lost time or Ineffective Time : An idea of productiv ity can
also be obtained from the extent of ineffective or lost time :
Man- hours lost
x100
Lost time percentage =.
Possible man hours Other Methods :
An idea of productivity can be obtained from the following expres sions in
terms of money:
a.
Sales Value (or Cost) of output
Number of workers
Cost Accounting
U L a b o u r Cost
109
108
or Direct Wages Number of units
b.
Direct Wages Sales Value c.
Added value for the product
:
Total Wages .
Added Value = Sales value less material cost ]
Steps to increase Labour Productivity :
i. Recruitment of right type of workers suited for jobs and avoidance of
labour shortage.
ii.
Proper training of workers.
iii. Production planning including steady flow of materials, better layout,
proper maintenance of machines and better working conditions.
iv. Simplification and standardisation of work and
v. Work study, fixation of proper rates and incentive schemes.
Qn. 14. What do you understand by Time and Motion Study? In what ways
is it connected with remuneration of labour?
Time study aims at determining the proper speed of movements made by

the workers and motion study aims at eliminating unneces sary movements.
Time study and motion study move together. They are complementary to
one another.
TIME STUDY.
It may be defined as" the art of observing and recording the time required
to do each detailed element of an industrial operation".
Object: Its main object is to determine the standard tirrje requiredto carry
out a job most efficiently.
.
Steps :
The technique of Time study consists of the following steps :
i. Analysing the task into its constituent motions, elements or operations.
ii. Determining time for each motion or element with the help of a
stopwatch or any other time recording equipment.
iii. Allowance is made for fatigue, idleness inherent in the method of work
and re-setting of tools etc.
iv. Total of the time determined for different elements gives the standard
time for a job or task.
MOTION STUDY. .
Motion study deals with one aspect of methods study, ie. to elimipate unnecessary movements of men and material. It is the science of
eliminating wastefulness resulting from using unnecessary, ill-directed and
inefficient motion.
Object: To find and perpetuate the scheme of least waste in meth ods of
work.
Merits : It is a means to increase production, greater efficiency in plant
organisation, less human fatigue and lower cost of production. Time and
Motion Study and Remuneration of Labour.
When labour is remunerated on piece-rate basis or by some incen tive
scheme, it is essential to determine the standard time required to complete
a job. For this purpose, Time and Motion Study is the most scientific
method.
The standard time provides the basis for measuring the output of workers
in order to fix piece wage rates or to provide them some incen tives to
attain standards.
FRINGE BENEFITS Qn. 15. Explain Fringe benefits.
Apart from normal basic wages, dearness allowance, house rent, city
allowance etc.' employees get some indirect cash or fringe benefits such as
holiday pay, sick pay, overtime and night shift premium, insur ance and
pension facilities, profit sharing bonus. Thus fringe benefits are indirect

benefits. They tend to improve the employee morale, loyalty and stability.
Treatment: If fringe benefits are.considerable, those are recovered as a
direct charge by means of a supplemental wages rate, otherwise, these are
collected under separate standing orders and form of part of production
overhead.
GROUP BONUS SCHEME
Qn. 16. What is Group Bonus Scheme? What are its limitations ?
Bonus may be given individually to every worker or collectively to a
group.of workers. When bonus is paid collectively, it is known as group
bonus scheme. It is a scheme in which the bonus is calculated on the
collective production of a group of interdependent workers and distrib uted
among the individual members of the group on some agreed basis.
Group bonus scheme can be effectively used in the following
circumstances.
i. Where performance of individual worker cannot be measured.
ii. Where the group is not unduly large.
T
Cost Accounting
110
labour Cost
111
iii. Where workers constituting group are almost of equal skill.
iv. Where incentive is to be provided for indirect workers.
v. Where the output depends not on an individual effort but on the
collective efforts of a group. -Merits :
i. It infuses co-operation and team work among the workers.
ii. This system requires less clerical work because it involves recording of
the output of the group and not of individual workers.
iii. Supervision work is reduced as a comparatively less efficient worker is
automatically pulled up by his efficient co-workers.
iv. Indirect workers can also be included in the scheme by allo cating such
workers to groups.
v. Absenteeism is reduced because an absent member weak ens the group
and most workers do not like to let down their team.
Demerits:
i. This system is unfair to hard-working and efficient workers of the group
as an efficient worker is paralised for inefficiency of other members of the
group.

ii. It is difficult to get workers' acceptance of the scheme.

iii. There may be some practical difficulties regarding fixing the amount of
incentive and how it is to be distributed to individual workers.
iv. The amount paid as bonus to each member of the group is usually .small
and that they may not prove to be an effective incentive.
PREMIUM BONUS SYSTEM Qn. 17. What is meant by premium plans?
Premium Bonus Plan are also known as Incentive system of wage payment.
These system of wage payment aim at inducing workers to increased
efficiency and greater output. They combine the basic fea tures of time and
piece rate systems witt\a view to overcoming their disadvantages. They
strike a balance between the two and enable both the employer and
employees to share the gains from increased pro ductivity.
The individual bonus schemes under the premium bonus system include i.
Halsey Premium Plan. ii. Halsey- weir Premium system, iii. Rowan System,
iv. Barth Variable Sharing Plan. v. Emerson efficiency bonus, vi. Bedaux
Point Premium System, vii. Accelerating premium plans, viii. Baum
differential Plan. ix. Diemar System.
DISADVANTAGES OF PIECE-RATE SYSTEM
Qn. 18.
What are the disadvantages of piece-rate system of wage
payment?
i. Increase in production is likely to affect the quality of work, ii.
Where quality is more important, the employer has to spent more on
supervision, inspection and quality control.
iii. Considerable work is involved in fixing the piece rate.
iv. In their anxiety to earn more, workers are less likely to take proper care
of tools and machines.
v. This system is not suitable for the beginners. vi. It cannot be adopted
in cases where work is not measurable. vii. It demands a constant and
continuous supply of work, viii. It is likely to cause indiscipline and
absenteeism among the work-brs (if rules regarding arrival and departure
are not enforced.)
ADVANTAGES OF PIECE-RATE SYSTEM
Jn. 19. What are the advantages of piece-rate system of wage pay ment?
Under this system, payment is made according to the quantity of vork done
(ie. number of units produced by a worker) and no consider-btion is given
to the time taken by the workers to perform the work.
i. This system requires less supervision.
ii. Since effort is rewarded, it provides an incentive to hard work.
iii. It brings about increased output at a lower cost per unit.

iv.. Wastage of time gets considerably reduced.

v. It facilitates production control.
vi. It increases labour efficiency and skill (because workers try to dopt
improved methods).
vii. It is simple and easily understable.
viii. It facilitates preparation of quotations and budgets.
'
TIME-KEEPING VS. TIME-BOOKING
;
bn. 20 Distinguish between Time-keeping and Time-booking. Time keeping
Time-booking
|. It is concerned with the record- Lit is concerned with the work ng of the
attendance time or gate time of each worker (on a job) |me of each worker.
112
Labour Cost
Cost Accounting
113
2. It is the first phase of time recording.
3. It records the total time spent by the workers within the factory
premises.
4. It is done at the factory gate.
2. It is the second step of time recording.
3. It records the productive time (ie. the actual time spent by the workers
on jobs)
4. It is usually done at the work shops or the departments where the workers
work.
Qn. 21. What are the essential features of a good wage system. (Oct. 98).
Remuneration is the reward for labour and service, whereas in centive is the
stimulation of effort and effectiveness by offering mon etary inducement or
extra facilities. Remuneration includes wages paid for manual work,
salaries paid to staff, fees and allowances of different kinds. Incentive may
be monetary or non-monetary.
There are various systems of wage payment. Which ever system is adopted,
its object should be 16 stimulate production, improve effi ciency and create
an atmosphere of goodwill and satisfaction among the workers. For this
purpose, the wage rate should have a direct bear ing on the basic skill,
effort and responsibility of a worker. A good wage system should satisfy
several essential conditions. They are
1. It should be simple enough to be easily understood by the workers.
2. It should be carefully worked out on the basis of scientific time and

motion studies.
3. The workers and their unions should be informed about the procedures
followed in the establishment of the wage rates so that there may not be
any ground for suspicion.
4. The system should be capable of operation without much cleri cal work.
5. The cost of operation and administration of the system should be as low
as possible.
6. It should be fair to both the employer and the employees.
7. It should ensure guaranteed minimum wages at a satisfactory level.
8. It should provide suitable incentive for hard work.
9. It should be such as to reduce labour turnover.
HALSEYPLAN
Qn. 22. Explain Halsey incentive wage Plan ( April 2000).
Under the Halsey Plan, standard time for doing each job or opera tion is
fixed and the worker is given wages for the actual time taken to complete
the job plus a bonus of 50% of the wages of the time saved. Thus,
Earnings = (Time Taken x Rate per Hour) + 1/2 x time saved x Rate
per hour.
Or E = TxR + 1./2 (SxR)
Where S = Time Saved = Standard Time -TimeTaken. Merits :
. i.
It is simple to understand and easy to calculate.
ii. This system guarantees time wages to workers
iii. Under this system, benefits of time saved are shared equally by both
employer and employee.
iv. It provides incentive for efficiency, but does not penalise below
average workers. Demerits :
--V,,
' ,'
i.
Fixation of standard is very difficult.
ii. Quality of work suffers because workers are fri'a hurry to save more
time (to get more bonus)
iii. Workers are dissatisfied because the employer gets a share of wages of
the time saved.
Qn. 23. List two cases where piece rate system can be successfully
applied. (April 2000)
Piece Rate System (payment by Result or Piece Wage System ) is more
suitable in industries where,
i.
Quality of work is not important (eg. mining, quarry etc.)
ii.
Job rate can be satisfactorily fixed.
iii.
Work is of a repetitive nature and can be measured in convenient

units,
iv.
There is sufficient demand for output to guarantee continuous work.
ROWAN PLAN
Qn. 24. Explain Rowan Plan . Under Rowan Plan, workers get guaranteed time wages at the ordi115
Labour Cost
114
Cost Accounting
nary rate for the time taken by him to complete the job. In this case, bonus
is that proportion of the wages earned which the time saved bears to the
starvdard time allowed. Thus, Earnings of the Workers = Time Wages +
Time Saved/ Standard Time
x Time wages.
Or E = T x R + S/ Std. time x T x RWhere.
T= Time taken, R = Rate per hour, S = Time saved. Merits :
i.
It guarantees time wages to workers.
ii. Workers are able to earn more wages than the Halsey Plan.
iii. Quality of work does not suffer much because bonus increases at a
decreasing rate at higher level of efficiency.
iv. Labour cost per unit is reduced. .
v. Fixed overhead cost per unit also is reduced
Qn. 25. Compare Halsey Plan with Rowan Plan. Halsey Plan
Rowan Plan
wages.
2. Benefits of efficiency (or time saved ) are shared between employer and
employee equally.
3. Bonus is 50% of the wages of time saved.
1. Guarantees minimum time
1. Guarantees minimum time
wages.
2. Benefits of time saved are shared between employer and employee, but
not equally.
3. Bonus is calculated at that pro portion of time wages which time saved
bears to the standard time.
4. Labour costs decrease steadily with improvement in ef ficiency.
4. Labour costs decline at a faster rate than Halsey Plan upto the sav ing of
half the time allowed and thereafter at a lesser speed.

5. Bonus increases steadily with the rise in efficiency.

6. Wages of the workers per hour rises rapidly.
5. Bonus increases rapidly upto 50% saving of the standard time allowed
and there after declines.
6. Hourly earnings of the workers increases steadily. Upto 50% sav ings of
the standard time hourly earnings are more than the Halsey plan and there
after it declines.
EMERSON'S EFFICIENCY PLAN Qn. 26. Explain Emerson's Efficiency
Bonus Scheme.
This scheme guarantees time wages. A worker gets bonus when ha attains
66 2 / 3 % of efficiency. The amount of bonus payable increases /progressively
with increase in efficiency. At 100% efficiency, bonus will be 20% of basic
rate. Beyond 100% efficiency, additional 1% bonus is payable for each 1%
increase in efficiency. Thus at 110% efficiency, bo nus payable is 30% Qn.
27. What is Taylor's differential piece-rate system?
Under the differential piece-rate system, the wages of workers vary - at
different stages within a certain range of output.
Under the Taylor's differential Piece-rate System, the standard task is
established after careful time and motion study and two piece-rates are set.
The low-rate is for sub-standard performance and high rate for standard
and above standard performance. Features:
i. Day wages are not guaranteed
:: ,ii. A standard time for job is
established,
iii. Two piece work rates are fixed. If the worker does the work in less
than the standard time, he receives the higher piece rate, whereas if he
takes longer time, he receives the lower piece-rate.Merits :
i. It is simple to understand and operate. . ii. It attracts efficient
workers.
iii. Where the overheads are high, its incidence per unit cost is re duced
because of increased production.
iv. It is advantageous from the point of view of the employer since it helps
much in increasing production by offering high rates to more effi cient
workers.
116 Cost Accounting
Demerits :
i. It penalises very severely the slow or inefficient workers as a slightfall
in production will considerably affect their earnings.
ii. It makes wide discrimination between efficient and inefficient workers
and thus creates rivalry and disturbance among workers.

til. It does not guarantee the minimum day wages and thus inse curity
affects the morale, of workers.
iv. Labour cost will differ between the two levels of performance because
of two different rates.
MERRICK'S MULTIPLE PIECE RATE SYSTEM
Qn. 28. What is Merrick's Multiple Piece Rate System?
This is a modification of the Taylor's Differential Piece Rate Sys tem and
uses three rates, instead of-two, and workers producing below the standard
output are not penalised by the low piece rate. The basic features of this
scheme are :
i. Upto 83% of the standard output, workers are paid at theordinary piece
rate, \ ......
ii. 83 to 100% of the standard output, at 110 % of the ordinary piece rate,
and
iii. Above 100% at 120% of the ordinary piece rate. Since the earnings
increase with increased efficiency, performance above the stan dard will be
rewarded by more than one higher differential piece' rate. This scheme is
effective .for high level production.