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INTRODUCTION TO COSTING

Unit 2 – Accounting for Labour

TUTORIAL SHEET

GENERAL
1 What are the responsibilities of the personnel, wages/payroll and costing departments?
2 What is a clock card?
3 Are overtime and shift premiums normally included in direct wages?
4 Give some examples of reports, which might assist labour cost control.
LABOUR TURNOVER
5 The following statement is an extract from an article about an electronics and
telecommunications company. “Turnover for the entire labour force is now stabilized at
23% per annum, consisting of 4% for management, 30% for hourly paid workers, one
third of whom are women”
(a) Explain what is meant by “labour turnover”
(b) What are some of the reasons for a high labour turnover ratio?
(c) List five (5) cost implications of a high labour turnover ratio?
6 X Ltd has an average of 42 workers employed in one of its factories in a period during
which seven workers who left were replaced. Calculate the labour turnover percentage
for the period.
7 Mona Ltd. had a staff numbering 1,600 at the beginning of 2003 and 2,400 at the end of
that year. 800 employees resigned on June 30, 2003 and were immediately replaced by
800 new employees on July 20, 2003, 800 new employees were also recruited at that
time. Calculate the labour turnover rate.

8 Manchester Producers Ltd. had a staff of 2,000 at the beginning of 2008 and, owing to a
series of redundancies caused by recession, 1,000 at the end of the year. Voluntary
redundancy was taken by 1,500 staff at the end of June 2008. This was 500 more than the
company had anticipated, and these excess redundancies were replaced a week later by
new workers. Calculate the labour turnover rate.
9 Which of the following is a cost of labour turnover?
A. Marginal cost
B. Step cost
C. Training cost
D. Opportunity cost
10 Which of the following is not a typical reason for labour turnover?
A. Change in domestic circumstances.
B. Discharge
C. Lack of career structure
D. Increase in salary

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11 Cost relating to labour turnover may be classified as:
i. replacement costs
ii. preventative costs

Required:
Define both replacement and preventative costs giving TWO examples of each, and state
a formula used to calculate the rate of labour turnover.

12 The directors of Golden Beach Resort Ltd are concerned about its labour turnover rate,
especially after a director heard employees talking about how ‘badly the company treated
them.’

Below is the turnover rate for three similar players in the hotel industry for the year
ended 31 December 2004:

Slippers Beach Supreme Clubs Ritz Sultan

Resort Resort Resorts
5% 6% 4%

The following data concerns the labour force of Golden Beach Resorts:

Employees at January 1, 2004 1200

Employees at December 31, 2004 900
Workers who resigned during the year 300
Workers hired during the year 260

(i) Calculate the labour turnover rate for Golden Beach Resort.

(ii) Is the concern of the directors of Golden Beach Resorts justified? Explain

(iii)Write a memo to the directors of Golden Beach Resorts advising them of how to proceed
in correcting their labour turnover problem, making specific references to preventative
and replacement costs.
LABOUR RATIOS
13 Silverstone Ltd. Budgets to make 25,000 standard units of output during a budget period
of 125,000 hours. Actual output during the period amounted to 30,000 units, which took
145,000 hours to produce.

(a) What is the efficiency ratio?

(b) What is the capacity ratio?
(c) What is the production volume ratio?

14 A company manufactures a single product at the rate of 25 units per direct labour hour.
660 direct labour hours were budgeted to be worked in a period during which 640 hours
were actually worked and 16,390 units were manufactured.

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Required:
Calculate the following ratios for the period:
(i) efficiency
(ii) capacity
(iii) production volume

15 BashCo Ltd is a manufacturing company which produces brown sugar. The company
planned to produce 60,000 kilograms of brown sugar in 1,500 hours. For the period ended 31
March 2005, the company produced 90,000 kilograms in 2200 hours.

(i) Calculate the labour efficiency ratio.

(ii) Calculate the capacity ratio
(iii) Explain what is revealed by both ratios.

16 The direct labour capacity ratio for a period was 104%. What could have caused this?
A. Actual hours worked being greater than budgeted hours
B. Actual hours worked being less than budgeted hours
C. Standard time for actual output being greater than budgeted hours
D. Standard time for actual output being less than budgeted hours
LABOUR REMUNERATION
17 a) Briefly outline the features of the three major categories of labour remuneration.
b) For each category identified above, provide some examples of their implementation
and critically assess their strengths and weaknesses
18 A worker is paid by differential piecework as follows:

Up to 300 units $0.40 per unit

301 – 500 units $0.45 per unit
501 – 800 units $0.48 per unit
801 and above $0.50 per unit

In a particular week, 596 units were produced, of which 22 were rejected. What were the
worker’s wages for the week?

19 ABC company runs a 35-hour week and pays a basic rate of $2.00 per hour. The
company has a high day rate scheme in which the standard level of output is fixed at 45
garments and the high day rate is fixed at $2.20. During one week an employee works 35
hours and produced 40 garments. What is his total salary for that week?

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20 Amalgamated Ltd is a manufacturer of a product used in the motor industry. The product
is assembled from various parts and the production operatives are paid on a piecework
basis. The piece work scheme to be applied to all good production in a week is as
follows:

0 – 100 units: $0.40 per unit

101 – 200 units $0.48 per unit
201 – 300 units $0.56 per unit
Over 300 units $0.64 per unit

Rejected production does not qualify for payment.

It should be noted that only additional units qualify for the higher rates

The following output was achieved by three operatives during the week ending 31
October 2005.

Operative A B C
Output (including rejects) 520 units 600 units 480 units
Rejects 19 units 62 units 10 units

Required:
(a) Calculate separately the earnings of each of operatives A, B and C for the week
ending 31 October 2005.
(b) What are two advantages to an employer if they use a piecework scheme?
(c) What is one disadvantage to an employer if they use a piecework scheme?
21 D Limited has two employees, John and Wayne, making product E. During one week,
both employees worked for 40 hours. John’s rate of pay was $3.20 per hour and he
produced 180 units of E. Wayne’s rate of pay was $2.75 per hour and he produced 150
units. The budgeted time allowed to complete one unit of E is 15 minutes. Each
employee is guaranteed a minimum wage based on his respective hourly rate.

(a) Calculate the gross wage for the two employees if payment is determined on a day
worked basis?
(b) Calculate the gross wage for the two employees if payment is determined on a
piecework basis at rate of $0.72 per unit?
(c) What is the gross wage for the two employees if a bonus is paid at $2.40 for each
hour saved?

22 Mary’s wages for January was obtained from regular pay, overtime pay and a bonus
payment. Her regular pay for January amounted to 40% of her total wages. Of the
remainder, 75% was obtained for working overtime. The remaining $1800 represents the
bonus payment. How much was her total wages for January?

23 A company pays direct operatives a basic wage of $8.50 per hour plus a productivity
bonus. The bonus is calculated as: [(time allowed – time taken) x (basic rate per hour ÷
3)]. The time allowed is 2.4 minutes per unit of output. An operative produced 1,065
units in a $37.50-hour week.

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What were the total earnings of the operative in the week?
A $318·75
B $333·20
C $340·40
D $362·10

24 A job cost estimate includes 630 productive labour hours. In addition, it is anticipated
that idle time will be 10% of the total hours paid for the job. The wage rate is $12 per
hour.

What is the total estimated labour cost for the job?

A $6,804
B $7,560
C $8,316
D $8,400

ACCOUNTING FOR LABOUR

25 A firm’s basic rate is $3 per hour and overtime rates are time and a half for evenings and
double for weekends. The following details have been recorded on three jobs.

Job X321 Job X786 Job X114

Clock Hours Clock Hours Clock Hours

Normal time 480 220 150

Evening time 102 60 80
Weekend 10 30 16

You are required to calculate the labour cost chargeable to each job in the following
circumstances:
(a) Where overtime is worked occasionally to meet production requirements.
(b) Where overtime is worked at the customer’s request to bring forward the delivery
time.
(c) Write the journal entries to account for direct wages and indirect wages

26 When production has been completed what double-entry would be made in a cost
accounting system?

Debit Credit
A. Cost of sales Finished goods
B. Finished goods Work-in-progress
C. Finished goods Cost of sales
D. Work-in-progress Finished goods