labour(should also read classnotes)

Question 1

labour costs

Answer 1

amounts paid to any employee, including supervisors, office staff and managers.
direct labour and indirect labour,

must not assume that this is necessarily a manual/clerical distinction (direct + indirect costs differ in that they are accounted for differently).

Question 2

labour costs could be

Answer 2

• gross amount due to employee
• employee benefit contributions
• amt paid to recruit labour
• amt paid for staff welfare
• training costs
• costs of benefits(company cars)

wage, salary, overtime, bonus, sick / holiday pay, other incentives

Question 3

determining labour costs

Answer 3

• according to prior agreement
• according to amount of time worked
• according to amount/quality of work done(piecework/performance based remuneration)

for most occupations is combination of a+b- basic wage/salary agreed when appointment made

Question 4

payroll accounting system

Answer 4

Labour attendance time needs to be recorded to show absent days and to ensure correct payment. Job time may be recorded on daily time sheets, weekly time sheets or job cards depending on the circumstances

Question 5

records of labour costs

Answer 5

• Records of agreed basic wages and salaries
• Records of time spent working
• Records of work done

Question 6

2 types of remuneration

Answer 6

Time-based
Output/performance based (incentive)

Question 8

basic pay decided by

Answer 8

senior management taking into account what other employers are paying for similar work, what they consider work to be worth, how easy to recruit labour+agreements w trade unions

mentioned in letter of appointment + incl in employee contract
main ongoing record in employee record held in HR/computer system
shows subsequent increases in the wage rate or salary level

Question 9

attendance time

Answer 9

bare min record showing days absent due to…
employees required to book annual leave in advance
for absence due to sickness, required to let line manager know asap

Some businesses may record time of arrival, time of breaks, and time of departure, using employee swipe cards.

Question 10

line managers resp for

Answer 10

contacting HR to record absence

Question 11

job time

Answer 11

Common in the construction industry to track labour time on specific projects.

A job card is prepared for each job or batch.

Employees record time spent on each job.

Job cards may include entries from multiple employees.

Once completed, the card shows total time and quantities for the job or batch.

Sometimes used to send job details to workers (often online).

Workers update the card with work done and time spent.

Example: Boiler repair engineers use job cards to log job details, work completed, and duration.

Question 12

salaried labour

Answer 12

amount of the salary is usually set out in a contract of employment, along with the expected working hours- may be required to prepare time sheets too

Question 13

reasons salaried labourers required to prepare time sheets

Answer 13

(a) Time sheets provide management with information (eg product costs).
(b) Time sheet information may provide a basis for billing for services provided (eg service firms where clients are billed based on the number of hours work done).
(c) Time sheets are used to record hours spent and so support claims for overtime payments by salaried staff.

Question 14

coding of job costs to facilitate analysis

Answer 14

(a) Employee number and perhaps a team number
(b) Pay rate, for example ‘A’ for $5 per hour, ‘B’ for $6 per hour and so on
(c) Department and/or location if the organisation has different branches or offices
(d) Job or batch type, for example different codes for audit, accounts preparation and tax in a firm of accountants, or for bodywork and mechanical repairs in a garage
(e) Job or batch number to enable each successive example of the same type of work to be allocated the next number in sequence
(f) Client number so that all work done for the same client or customer can be coded to the same number

Question 15

overtime

Answer 15

may be basic rate
may also be premium rate (time and a third) is an indirect cost

Question 16

overtime premium

Answer 16

extra amount paid ON TOP OF basic rate for hours worked over+above basic hours
- indirect cost/overhead
not allocated to products manufactured outside basic hours

Question 17

2 exceptions to overtime premium treated as indirect cost

Answer 17

a. overtime worked at specific request of customer to get order completed
b. if overtime worked regularly by production dept in normal course of operations-then directly incorporated

Question 18

5 main types of incentive scheme

Answer 18

• piecework,
• time-saved bonus,
• discretionary bonus,
• group bonus scheme and
• profit-sharing scheme

Question 19

diff between overtime premium + incentive bonus

Answer 19

• paid to encourage staff to work longer hrs than normal
• paid to encourage staff to work harder whatever time during the day

Question 20

piecework incentive

Answer 20

• the more output produced the more you’re paid
  differential: based on unit ranges
  usually have guaranteed min wage in case can’t work due to external factors

Question 21

time saved bonus incentive

Answer 21

could encourage its engineers to do such work at the faster rate by paying a bonus for every minute saved on the job up to a maximum of 15 minutes
-: need to establish standard time for each job- difficult to do so

Question 22

discretionary bonus

Answer 22

given just because employee deserves it
-: could be perceived by other employees as unfair

Question 23

group bonus incentive

Answer 23

paid to all who contribute

Question 24

profit sharing incentives

Answer 24

receive certain proportion of company’s year end profits
size related to level of resp + length of service

Question 25

reasons for absence from work (all treated as overheads except holiday pay)

Answer 25

- holiday - sickness - maternity/paternity leave - training

Question 26

labour turnover grouped into costs of turnover are also grouped into these

Answer 26

preventative replacement

Question 27

labour turnover calc

Answer 27

replacements/avg number of employees in period x 100 measure of num employees leaving/being recruited in period/total number employees

Question 28

replacement costs

Answer 28

incurred as result of hiring new employees - cost of selection+placement - inefficiency of new labour- lower productivity - costs of training (formal+on the job instructors having to divert own work to teach) - loss of output due to delay in new labour becoming available - increased wastage+spoilage because lack of expertise - possibility of more frequent accidents at work - cost of tool+machine breakages

Question 29

preventative costs

Answer 29

prevent employees leaving - HR admin incurred in maintaining good relations - medical services (check ups, nursing staff etc) - welfare services (sports facilities, laundry, meals etc) - pension schemes provide security - cost of providing training+career progression

Question 30

actions preventing labour turnover

Answer 30

*Paying satisfactory wages *Offering satisfactory hours and conditions of work *Creating good relations between fellow workers, supervisors and subordinates * Offering good training schemes and a well-understood career or promotion ladder * Improving the content of jobs to create job satisfaction * Proper planning so as to avoid redundancies *Investigating the cause of high labour turnover rates

Question 31

What does the efficiency ratio measure?

Answer 31

Production output for a period took more or less direct labour time than expected > 100% = great efficiency

Question 32

What does the capacity utilisation ratio measure?

Answer 32

Total direct labour hours worked were greater or less than budgeted

Question 33

What does the production volume ratio measure?

Answer 33

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

Question 34

Relationship between labour ratios =

Answer 34

Efficiency ratio × capacity utilisation ratio = production volume ratio

Question 35

Remuneration is

Answer 35

what employees receive in exchange for work. generally in the form of money, but there are other ways in which organisations remunerate their employees: some companies give their employees shares in the company as part of their pay package; others provide benefits such as meals, health insurance and vehicles

Question 36

There are different methods of determining payment for employees. These can be grouped into two main categories

Answer 36

Time-based Output- or performance-based.

Question 37

For the MA2 exam, assume labour costs are variable unless specified otherwise.

Question 38

Incentive schemes

Answer 38

either output- or performance-based remuneration schemes. They are designed to encourage employees to work harder or more efficiently

Question 39

Piecework

Answer 39

more efficient workers get paid more than inefficient workers. This method can guarantee the cost per unit for organisations, which helps planning accuracy.

Question 40

Bonuses

Answer 40

monetary incentive based on the performance of an individual, group, or whole organisation Employees could receive a bonus based on their performance, or all employees might receive a share of a group bonus

Question 41

Commissions

Answer 41

paid based on a successful outcome. They are often used in sales as a percentage of the sales amount.

Question 42

Profit-sharing schemes

Answer 42

Employees are given a share of the profit made by the organisation in the year.

Question 43

+: remuneration

Answer 43

- Help to increase production while controlling costs per unit, which helps the accuracy of planning - More efficient employees are paid more than inefficient or less hardworking employees - May attract more skilled workers

Question 44

-: remuneration

Answer 44

- Incentive schemes are more expensive to administer - Quality control is needed to ensure output meets standards.

Question 45

payroll system

Answer 45

Organisations use a payroll system to calculate and organise labour costs every time employees are paid. This is usually every week or every month.

Question 46

Labour cost records should contain the following:

Answer 46

The identities, roles, and payment information of the employees. The agreed wages and salaries The hours worked by employees The work that has been done.

Question 47

payroll team is

Answer 47

usually part of the finance team but has strong links to the human resources department

Question 48

Human resources (HR) system

Answer 48

primary source of data. Some of it is confidential and will only be accessed by HR, such as individual pay rates - enter the employee's job title, pay rate, contract type, start date, department and payment coding information into the computer system -issue a contract -Employees sign the contract and provide their personal, bank, and tax rate details to HR

Question 49

For each payment cycle (monthly, weekly or every four weeks), HR will receive, check and enter further information

Answer 49

Waged employees will submit a timesheet (usually online) to be authorised by their manager or use an electronic swipe card to record their attendance. -enter the time worked by these employees into info system. -For employees on incentive schemes, enter records of output or performance such as sales made or quantity produced and the TIME TAKEN - For salaried employees, payments processed without needing further inputs unless there are exceptional circumstances such as unpaid leave or sickness absences

Question 50

Payroll system

Answer 50

Information is drawn from the HR system for use within the payroll system. Calculations are performed automatically regarding tax and other deductions and benefits such as pensions. The payroll system automatically generates documents such as payslips and annual pay statements. Bank transfers are automatically generated by the system and released after being checked and authorised.

Question 51

Financial accounting system

Answer 51

Payroll transactions are automatically posted to the financial accounting system. This is a summarised version of the information retained in the payroll system and will generally show aggregate amounts with no breakdowns or personal identifiers, so individual salaries remain confidential.

Question 52

Management information system

Answer 52

ppl can access info to diff systems through MIS, with some HR data aggregated(total sickness absence rates for teams or departments)to protect personal details Personal or individual sickness absence details NOT AVAILABLE.

Question 53

Coding of Job Costs

Answer 53

worker’s total pay, including any overtime premium, will be administered by the payroll system payroll system will need to work out the total cost and be able to apportion this back to the job the worker is doing direct labour cost in relation to a particular job is recorded on the relevant job cost card

Question 54

job cost card

Answer 54

record of all costs (materials and labour) involved in a particular job direct labour cost on each job cost card will be linked to the payroll system and workers’ timesheets.

Question 55

double entry Payment of net pay to employees

Answer 55

Dr Wages control Cr Bank / Cash (net pay)

Question 56

Payment of employee deductions and employer contributions to external entities

Answer 56

Dr Wages control Cr tax PAYE / employee benefits Pay-as-you-earn (PAYE) are monthly deductions from employee paycheques remitted to external entities. PAYE may be required for income tax and mandatory insurance contributions.

Question 57

Accounting for costs of labour (including employer contributions)

Answer 57

Dr Work-in-progress / production overheads / employer contributions Cr Wages control

Question 58

Labour costs are then accounted for using the same principles applied to direct and indirect materials costs.

Answer 58

Direct labour costs are debited to the work-in-progress account Indirect labour costs are debited to the production overhead control account Both direct and indirect labour costs are credited to the wages control account.

Question 59

National insurance is a mandatory contribution by employees to a regulated fund that disburses certain employee protections, such as redundancy payments, payouts and medical care provision for injuries sustained at the workplace, etc.

Question 60

Labour turnover is the rate at which employees leave an organisation. costs of labour turnover can be put into two categories:

Answer 60

Preventative costs: the costs involved in encouraging employees to continue working at the organisation Replacement costs: the costs involved in recruiting and hiring new employees

Question 61

Examples of preventive costs

Answer 61

- Cost of benefits and incentive schemes - Cost of development training to encourage employees to progress in their careers at the organisation

Question 62

Examples of Replacement costs

Answer 62

- Loss of output due to the time gap between an old employee leaving and a new employee starting - Cost of recruitment (advertising, recruitment agency fees) - Costs of training (training courses and existing staff providing instruction) - Lower production volumes while new employee learns how to do the job

Question 63

measuring labour turnover measures the number of employees leaving in a period and expresses this as a percentage of the total labour force

Answer 63

Organisations measure labour turnover and compare it to a base rate -> so company can understand if its turnover rate is unusual or in line with expected rates replacements / average number of employees in period

Question 64

Employer actions to reduce labour turnover include

Answer 64

Paying higher salaries and offering better benefits Creating a better working atmosphere Offering development training Offering clear career progression Offering flexible working arrangements.

Question 65

Managers measure labour performance by comparing the actual results or output with the expected performance for the required work

Answer 65

The labour ratios are based on DIRECT labour hours.

Question 66

STANDARD HOUR should be standard production in AN HOUR

Answer 66

amount of work achievable, at the expected level of efficiency, in an hour

Question 67

Standard time

Answer 67

(the time required to make one unit)

Question 68

efficiency ratio measures whether the production output for a period took more or less direct labour time than expected.

Answer 68

expected hours to make actual output / average hours taken x 100

Question 69

capacity utilisation ratio measures whether the total direct labour hours worked were greater or less than budgeted

Answer 69

actual hours worked/hours budgeted x 100

Question 70

production volume ratio measures how the actual production output for a period (in direct labour hours) compares with the budgeted output

Answer 70

expected hours to make actual output/hours budgeted x 100

Question 71

idle time pay for idle time is indirect cost(including direct workers)

Answer 71

times when employees cannot perform their work. In a factory, that might be because there is a stockout of raw materials. In an administrative job, they might need to wait for information or authorisation, or their equipment might have broken down Sometimes, idle time may be unavoidable. This is a cost to the organisation because it still needs to pay its staff. If idle time becomes a significant cost, it should be recorded and monitored to understand how much it costs the organisation and provide evidence for investigating the causes

Question 72

idle time ratio

Answer 72

shows the proportion of available hours lost due to idle time idle hours / total hours x 100

Question 73

labour costs can be determined according to

Answer 73

- some prior agreement - amount of time worked -quantity/quality of work done

Question 74

labour attendance time needs recording to show

Answer 74

absent days + ensure correct payment

Question 75

job time may be recorded on

Answer 75

- daily time sheets - weekly time sheets - job cards depends on circumstances

Question 76

5 main incentive schemes

Answer 76

- piecework - time-saved bonus - discretionary bonus - group bonus - profit sharing