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COSTING AND CONTROL

OF LABOR
YOGIE IRVANDA SAPUTRA/ 165020200111020/ BE
DEFINITION AND CLASSIFICATION
• Labor cost is the price paid for using human resources. The compensation to
employees who work in production represents labor cost.
• Direct labor was defined as all labor that is directly involved in the
production of a finished product, that can be easily traced to the product,
and that represents a major labor cost of producing that product
COSTS INCLUDED IN LABOR
• Gross earnings equals regular earnings plus overtime premium, and applies
to direct and indirect labor
• Regular earnings represents the total hours worked, including overtime,
multiplied by the regular pay rate
• Overtime premium represents the overtime hours multuiplied by the premium
rate
• The premium rate for overtime is usually one-half the regular rate
• Wages are payments made on an hourly, daily, or piecework basis
• Salaries are fixed payments made regularly for managerial or clerical
services
OVERTIME AND SHIFT PREMIUM
• The overtime premium is charged to overhead, and spread over all
production
• Thus, if a production employee’s wages are $4.00 per hour, the direct labor
cost would be $4.00 per hour for all hours worked, and the overtime premium
would be $2.00 per hour for only the overtime hours worked
• As with the overtime premium, the shift premium or shift differential should
should be charged to factory overhead rather than production, and spread
over all units produced
BONUS
• Bonus is payment given in addition to an employee’s usual compensation
and may be given for a variety of reasons, but generally it is a reward for
greater productivity or effort
• The amount of the bonus may be a set figure, a percentage of the profits, or
a percentage of one’s salary
• Theoretically, the bonus should be assigned to the work-in-process account
where appropriate
VACATION AND HOLIDAY PAY
• Factory employees are generally entitled to paid vacations after an initial
period of employment
• The amount of vacation time is usually based on length of employment
• Vacation pay should not be charged to work-in-process
• Vacation pay should be included in factory overhead costs, and accrued
over the period of productive labor
PENSIONS
The total costs of a pension plan are based on the following factors:
1. Number of employees retiring each year
2. Amount of benefits paid to each retired employee
3. Length of time that benefits will be paid
4. Amount of income earned from pension fund investments
5. Amount of administrative expenses
6. Benefits for employees who leave before reaching retirement age
FRINGE COSTS
• Paid vacations and pensions are only two of the fringe benefits frequently
given to employees
• Total payroll costs are now generally far above the cost of wages
SOCIAL SECURITY AND FICA TAXES
• The Federal Inscurance Contributions Act (FICA) requires employers to
match the employees’ contribution to social security
• To determine the amount of contribution, a fixed percentage is applied to
gross earnings up to a maximum limit
FEDERAL UNEMPLOYMENT TAXES
• Unlike FICA, this tax is levied on employers only
• The funds collected by the federal government are divided among the
states to administer their programs
STATE UNEMPLOYMENT TAXES
• In most states this taxes is levied on employers only, but few states also
require employee contributions
• To determine amount of contribution, a fixed percentage is applied to gross
earnings up to a maximum limit
STATE WORKMEN’S COMPENSATION
INSURANCE (TAX)
• This insurance or tax is levied on employers and is based on earnings per
employee
• The rates vary according to degree of occupational hazards; the highest
rates are paid for jobs having the greatest risks
INCENTIVE PLANS
• A wage-incentive plan is a system employed by some companies as a
means of minimizing and controlling labor cost
• It involves the payment of additional compensation for greater productivity
• Two commonly used plans are the Gantt Task and Bonus Plan; and the Taylor
Differential Piece-Rate System
• Before adapting an incentive plan, management must examine the possible
negative effects
ACCOUNTING FOR LABOR
Accounting for labor in a manufacturing company usually involves three
activities:
1. Time Keeping
2. Computation of total payroll
3. Allocation of payroll costs

This activities must be performed before the payroll is journalized


TIME KEEPING
• Two forms commonly used in timekeeping are the time card and the labor
job ticket
• A time card is inserted in a time clock by the employee several times each
day upon arrival, going to lunch, taking a break, and when leaving for the
day
• Labor job tickets are prepared daily by employees for each job and indicate
the number of hours worked, a description of the work performed, and the
employee’s wage rate
COMPUTATION OF TOTAL
PAYROLL
• Most manufacturing companies have a separate payroll department whose
function is to compute the total payroll, including the gross amount earned
and the net amount payable to employees after deductions
• The payroll department also pays the employees and maintains records of
their earnings, their wage rate, and job classification
ALLOCATION OF PAYROLL COSTS
• The total payroll cost for any one period must equal the sum of the labor
costs allocated to the individual jobs, departments, or products
JOURNALIZING PAYROLL
• Payrolls are generally prepared weekly, semimonthly, or monthly
• Gross wages for the individual are determined by multiplying the hours
shown on time cards or other pay authorization by the rate per hour, plus
any bonus or overtime
• A periodic cost accumulation system is a method of accumulating cost data
which provides only limited information during a period and requires
quarterly or year-end adjustments to arrive at the cost of goods
manufactured
• A perpetual cost accumulation system is a method of accumulating cost
data through a work-in-process, finished goods, and the costs of goods
manufactured
LEARNING CURVE
• A learning curve is a visual representation showing how output is affected by
the learning process

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