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Course Outline:
Learning Objectives:
Calculate the remuneration of labour using time based scheme and output based or
incentive scheme
INTRODUCTION
These labour will be paid wages or salaries which is known as labour cost in
manufacturing organization.
Example of labour costs are salaries, wages,overtime, bonus, medical expenses, etc.
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Chapter 3 - Labour 2011
NATURE OF LABOUR COSTS
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Chapter 3 - Labour 2011
LABOUR RECORDS & PROCEDURES.
A record of time worked is required for all hourly employees and also for salaried
workers if they are paid overtime. This is known as timekeeping.
The objectives of timekeeping is to provide the necessary information that enable the
payroll department
– to calculate and prepare the payroll
– to be used by the cost accounting department to charge direct labour costs to jobs,
processes, products, and indirect labour costs to overheads.
TIME RECORDING
– Timekeeping is also known as time recording.
– Time recording will help to provide a record of time spent in a factory. It is also a
form of attendance record.
– The most common method used is punch card/clock cards. This scheme is widely
used and easy to operate.
– Each worker is given a punch card/ clock card and is required to clock in and
clock out daily.
– A security guard or more specifically a time keeper will be assigned to be in a
charge of time recording clock to ensure the workers do not help to stamp each
others card.
TIME BOOKING
– Time booking is a form of timekeeping to record the time spent on a job or
operation in the factory.
– This information should be able to be reconciled with the time recorded in the
punch card/clock card.
METHODS OF REMUNERATION
Remuneration is the reward for labour and service. There are two main categories of
remuneration i.e. time based scheme and output based or incentive scheme.
The time based scheme is adopting a method of payment based on time which is based on
per hour, per day, per week or per month basis.
There are two time based schemes. One is called Basic Scheme and the other is called
High Day Rate Scheme.
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Chapter 3 - Labour 2011
Basic Scheme
Using this scheme, earnings are calculated based on the number of hours spent at his/her
place of work. Thus,
Gross Wages = Hours Worked x Rate Per Hour
Basic wages = Normal working hours X Rate per normal working hours
If he works more than Basic Working Hours, additional hours are considered as overtime.
Overtime Hours = Hours Worked - Normal Working Hours
Overtime paid = Overtime Hours x Rate Per Overtime Hour
Overtime hours are usually paid at a higher rate, example, 1 1/4 times, 1 1/2 times or 2
times higher.
Comprehensive Example:
Required:
Calculate the gross wages that will be received by each employees if they were paid on hourly
rate. Overtime is paid at a premium of 20% on hourly rate.
Adha
Fitri
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Chapter 3 - Labour 2011
Advantages and Disadvantages of Basic Scheme
The High Day Rate Scheme is designed to provide a strong incentive to good workers
by paying rates well above the normal rate.
The high wage rate is offered in return of high standard of performance and output.
the wage costs may increase but the increased productivity will help to reduce the
labour cost and the overheads cost per unit produced.
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Chapter 3 - Labour 2011
INCENTIVE SCHEME
There are three output based or incentive schemes namely, straight piece rate, piece rate
with guaranteed minimum and differential piece rate.
Straight Piece Rate - using this scheme, earnings are related to effort and varies with the
rate of production. Thus,
Gross wages = Number of Units Produced x Rate Per Unit
Comprehensive example:
Below are the data for the four employees of a company in the month of February:
All four employess are paid based on output.
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Chapter 3 - Labour 2011
Additional information:
Rate for good unit is RM7 for product A and RM5 for product B
Required:
Calculate wages paid for each employee for the month of February.
Employee Product A Product B Gross Wages
Alya
Afiqah
Allen
Aiman
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Chapter 3 - Labour 2011
Differential Piece Rate
At a higher production level, the incentive effect will decline. The Differential Piece Rate
method seeks to overcome this problem of “inverse labour supply curve”. This is
especially true when the income level of the employee is high.
Differential Piece Rate method encourages workers to increase production further by
offering an increased rate per unit at different levels of production.
Comprehensive Example:
Given below are the results for week 1 of February:
Tuah 250
Badang 270
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Chapter 3 - Labour 2011
OUTPUT BASED OR INCENTIVE SCHEME FOR GROUP
There are occasions where individual Incentive Schemes are not suitable and group
Incentive Schemes are likely to be more appropriate. This is especially true when:
a) production or performance is based on a group e.g. road surfacing
b) production is integrated and all directed towards the same end e.g. assembly line
c) production methods make it not feasible to measure individual performance.