unit 3(b) - CHAPTER 17 Labour Cost Accounting Introduction...

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Introduction CHAPTER 17 Labour Cost Accounting Labour cost is one of the important elements of production. Wage. salaries and other incentives of employee remuneration constitute a very large component of operating costs. Remuneration of employees is a vital factor not only affecting the cost of production but also industrial relations of the organization. No organization can expect to attract and attain qualified and motivated employees unless it pays them fair remuneration. Employee remuneration. therefore. influences vitally the growth and profitability of the company. For employees. remuneration is more than a means of satisfying their physical needs. Wages and salaries have significant influence on our distribution of income. consumption. savings. employment and prices. Thus. employee remuneration is a very significant issue from the viewpoint of employers. employees and the nation as whole. Objectives of an Ideal Wage System An ideal wage system is required to achieve the following objectives: (1) The wage system should establish a fair and equitable remuneration. (2) A sound wage system helps to attract qualified and efficient worker by ensuring an adequate payment. (3) It assists to improve the motivation and moral of employees which in turn lead to higher productivity. (4) It enables effective control of labour cost. (5) An Ideal wage system helps to improve union-management relations. It should reduce grievances arising out of wage inequities. (6) It should facilitate job sequences and lines of promotion wherever applicable. (7) An ideal system seeks to project the image of a progressive employer and to comply with legal requirements relating to wages and salaries.
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Labour Cost Accounting Principles of an Ideal Wage System The following principles should be adopted for an ideal wage system (1) Differences in pay should be based on differences in job requirements. (2) Follow the principle of equal pay for equal work. 383 (3) The scheme should be based on work study, and the work contents of various jobs should be stabilized. (4) Recognize individual differences in ability and contributions. (5) The scheme should not be very costly in operation. (6) The scheme should be flexible. (7) The scheme should encourage productivity. . (8) The scheme should not undermine co-operation amongst the workers. (9) The scheme should be sufficient to ensure for the worker and his family reasonable standard of living. Method of Remuneration There are two basic methods of wage payment: (1) Time Wage System and (2) Piece Wage System. Under time wage system. wages are paid on the basis of time spent on the job irrespect of the amount of work done. This is known as Time Rate or Day Wage System. The unit of time may be a day, a week, a fortnight or a month. Under piece wage system, remuneration is based on the amount of work done or output of a worker. This is known as "Piece Rate System" or "Payment by Result." Thus. a workman is paid in direct proportion to his output. A variety of bonus and premium plans have been designed to overcome the drawbacks
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