Chapter07 Labor costs
Priority = High
Exam Guidance
You will be expected to illustrate different remuneration policy and incentive schemes. Their characteristics must be always in your mind. And you must be familiar with the computation of total pay of employee. You will also need to be aware of the procedures and documents required for recording labour costs.
1. Measuring labour activity
1.1 Corresponding concepts
1.1.1 Production is the quantity or volume of output produced.
守望天山1.1.2 Productivity is a measure of the efficiency with which output has been produced. It is also called efficiency ratio .
Ratio > 100% : efficient labour Ratio < 100%:
Example: Suppo that an employee is expected to produce 3 units in every hour that he works. The standard rate of productivity is 3 units per hour. If, during one week, the employee makes 126
Productivity/efficiency ratio =Expected hours =纵使悲凉也是情
Actual output Expected output友情是什么
units in 40 hours of work the following comments can be made. 1.1.3 Standard hour of production is a concept ud in standard costing, and means the number of units that can be produced
by one worker working in the standard way at the standard rate for one hour.
1.1.4 Production volume ratio 1.1.5 Capacity ratio reprents how much production capacity is utilized.
Standard hour of production =Budgeted output Budgeted hours
Capacity ratio Actual hours taken
Relationship between the three ratios
Production volume ratio
= Efficiency ratio X capacity ratio
Example:
Rush and Fluster Co budgets to make 25,000 standard units of output(in four hours each) during a budget period of 100,000 hours. Actual output during the period was 27,000 units which took 120,000 hours to make.
Required:
Calculate the efficiency, capacity and production volume ratios.
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1.2 How to enhance production and productivity?
Production can be incread by the following ways.
a) Working overtime
b) Hiring extra staff
c) Sub-contracting some work to an outside firm
d) Managing the work force so as to achieve more output.
Productivity would be improved if a production department produces the same amount of output as soon as possible.
1.3 Effect of productivity on cost
An increa in productivity will reduce labour cost per unit.
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Example:
Clooney Co has a production department in its factory consisting of a work team of just two men, Doug and George.
Doug and George each work a 40 hour week and refu to do any overtime. They are each paid $10
0 per week and production overheads of $400 per week are charged to their work.
ⅰ.In week one, they produce 160 units of output between them. Productivity is measured in units of output per man
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hour.
ⅱ.In week two, management pressure is exerted on Doug and George to increa output and they produce 200 units in
normal time.
ⅲ. In week three, Doug and George agree to work a total of 20 hours of overtime for an additional $50 wages. Output is
again 200 units and overhead charges are incread by
$100.
［2002_dec Section A _20］There would be an increa in the
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total cost for labour as a result of:
(i) additional labour being employed on a temporary basis.
(ii) a department with spare capacity being made to work more hours.
(iii) a department which is at full capacity switching from the production of one product to another.
Which of the above is/are correct?
A (i) only
B (ii) only
C (iii) only清淡食物有哪些
D (i) and (iii) only
［Answer］A
1.4 Effect of automation on productivity
Rising wage rates have incread automation, which in turn has improved productivity and reduced costs. Where automation is introduced, productivity is often, but misleadingly, measured in terms of output per man-hour. A new measure of productivity is required, that is output per machine hour.
