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CMA CU - Chap4.pdf - CHAPTER – 4 ACCOUNTING FOR LABOUR...

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CHAPTER – 4ACCOUNTING FOR LABOURRemuneration methodsPayroll departmentThe payroll department is involved in carrying out functions that relate input labourcosts to the work done.Preparation of the payroll involves calculating gross wages from time andactivity records.The payroll department also calculates net wages after deductions frompayroll.The payroll department also carries out an analysis of direct wages, indirectwages, and cash required for payment.There are two basic approaches to remuneration – time-related or outputrelated.Time-related systemsThe most common remuneration method is to calculate pay or wages based on thenumber of hours an employee works.Employees are paid a basic rate per hour, day, week or month.Time-based systems do not on the whole provide any incentive for employeesto improve productivity and close supervision is often necessary.Overtime can be paid at a premium if any extra hours are worked.The formula for a time-based system is as follows.Total wages = (total hours worked × basic rate of pay per hour) + (overtime hoursworked × overtime premium per hour)A guaranteed minimum wage is often required due to minimum wagerequirements.Methods for recording the length of time an employee spends working can include:time sheetstime cardsjob sheets.
Time recordsIt is essential that organisations employ relevant methods in both manufacturingand service industries to relate the labour costs incurred to the work done. One ofthe ways in which this can be done is to make records of the time spent byemployees doing jobs.Time recording is required both for payment purposes and also fordetermining the costs to be charged to specific jobs.In many manufacturing industries employees will be supplied with anattendance record on which to record their time of arrival and departurefrom the factory. Such records are known as time cards (gate or clock cards)and are used to calculate wages and rates of pay.Plastic ‘swipe’ cards directly linked to a central computer can also be used.Activity time recordsAnother method of relating work done to costs incurred is by the use of activitytime records. Activity time records may be either period related or task related.Period-related timesheets are commonly used in service industries, forexample in accountancy firms where time spent working for different clientsis analysed, often to the nearest 15 minutes.Period-related timesheets are records that may cover days, weeks orsometimes longer periods.Task-related activity time records are known as job sheets, operationscharts or piecework tickets. They are generally more accurate and reliablethan time-related activity time records, and are essential when incentiveschemes are in use.

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Term
Spring
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N/A
Tags
1 Hour, 15 minutes, 12, 8

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