unit 3(a) - CHAPTER 16 Labour Cost Control Introduction...

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Introduction CHAPTER 16 Labour Cost Control Labour cost is the second important element of cost of production. Wages, salaries and other forms of remunerations represent a major portion of the total cost of a product or services. The growth and profitability of the concern depends upon proper utilization of human resources or labour forces which in turn needs proper accounting and control of cost. Thus, control of labour cost is a very significant issue from the viewpoint of management. Types of Labour Cost The labour cost can be classified into two types : (1) Direct Labour Cost. (2) Indirect Labour Cost. (1) Direct Labour Cost: Any labour cost that is specially incurred for or can be readily charged to or identified with a specific job, contract, work order or any other unit of cost is termed as direct labour cost. Wages for supervision, wages for foremen, wages for labours who are actually engaged in operation or process are the examples of direct labour cost. (2) Indirect Labour Cost: Indirect labour is for work in general. The importance of the distinction lies in the fact that whereas direct labour can be identified with and charged to the job, indirect labour cannot be so charged and has, therefore to be treated as part of the factory overheads to be included in the cost of production. For example, salaries and wages of supervisors, storekeepers and maintence labour etc. Control of Labour Cost Control of labour cost is a significant influence on the growth, profitability and cost of production. Labour cost may become unduly high rate due to inefficiency of labour, ineffective supervision, ideal time, unusual overtime work etc. The primary objectives of the management therefore is to efficiently utilize the labour as economically as possible.
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Labour Cost Control 369 Techniques of Labour Cost Control In order to achieve the effective utilization of manpower resources, the management has to apply proper system of labour cost control. The labour cost control may be determined on the basis of establishment of standard of efficiency and comparison of actuals with standards. The management applies various techniques for the effective control of labour costs as under: (1) Scientific method of production planning. (2) Use of labour budgets. (3) Establishment of labour standards. (4) Proper system of labour performance report. (5) Effective system of job evaluation and job analysis. (6) Devise a proper system of control over ideal time and unusual overtime work. (7) Establish a fair and equitable remuneration system. (8) Effective cost accounting system. Organisation for Control of Labour Cost The objectives of proper control on labour cost is effectively achieved through the functions of various departments responsible for controlling labour cost in an organisation. The following are the important departments for control over labour costs: (1) Personnel Departments.
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