Important techniques of labour costing

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

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
Also Check:  Difference between Direct and Indirect Labor Cost

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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