Important techniques of labour costing

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In this article, we are trying to explain some important techniques and formulas to calculate labour cost, payroll and incentive wages.

1. Measurement of Labour Turnover

(a). Separation method:

Labour Turnover = (No. of separations in a period / Average No. of Workers) x 100

LT = (NS / ANW) x 100

(b). Replacement Method

Labour Turnover = (No. of replacements in a period / Average No. of Workers) x 100

LT = (NR / ANW) x 100

(c). Flux Method

Labour Turnovber = (No. of separations + No. of replacements / Average No. of Workers) x 100

LT = (NS + NR / ANW) x 100

2. Labour Productivity

Labour Productivity  = Output / Actual Hours Worked

3. Labour Cost per unit

Labour cost per unit = Direct Wages / No. of units

4. Time Allowed

Standard Time + Incentive Allowance

5. Labour Efficiency

Labour Efficiency = (Actual output / Standard output) x 100

Also Check:  Labour Costing Practical questions with answers

6. Time Rate Method

Earnings = Hours worked x Rate per hour

7. Straight Rate Method

Earnings = No. of units x Rate per unit

Differential Piece Rate System

8. F.W Taylor’s System

Earnings = 80% of price rate when below standard

Earnings = 120% of price rate when at or above standard

9. Merrick Differential Price Rate System

Output % StandardPayment
Up to 83%Ordinary piece rate
83% to 100%110% of ordinary piece rate
Above 100%120% of Ordinary Piece Rate

10. Gantt Task Bonus Plan

Output % StandardPayment
Output below standardGuaranteed time rate
Output at standard120% of time rate
Output above standard120% of ordinary piece rate

11. Halsey Premium Plan

Earnings = Hours Worked x rate per hour + (500/100 x time saved x rate per hour)

E = HW x RH + (50 / 100 x TS x RH)

12. Halsey Weir Plan

Earnings = Hours Worked x rate per hour + (33 1/3% + time saved x rate per hour)

E = HW x RH + (33 1/3 / 100 x TS x RH)

13. Rowan System

Earnings = Hours worked x rate per hour + (Time saved / Time Allowed x hours worked x per hour rate)

E = HW x RH + (TS / TA x HW x RH)

14. Barth Variable Sharing Plan

Earnings = Rate per hour x √Standard hours x hours worked

E = RH x √SH x HW

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