Nov 2024 group-2

Cost & Management Accounting

Employee Cost & Direct Expenses

Lecture No.- 1

By- CA Sunil Keswani

of previous lecture
1 Doubt Solving
to be covered
1 Concept & Questions
 Employee Cost & Direct Expenses
1. Labour Turnover
It is the rate of change in labour force of an organisation. It can be calculated by following ways:
!"#$%& '( )%*+&+,-'.
(A)Separation Method = /0%&+1% !'. '( 3'&4%&5 ×100
!"#$%& '( 6%*7+8%#%.,
(B)Replacement Method = ×100
/0%&+1% !'. '( 3'&4%&5
!"#$%& '( 9:*+.5-'.
(C)New Recruitment Method = /0%&+1% !'. '( 3'&4%&5 ×100
(!'. '( )%*+&+,-'.<!'. '( +8%55-'.5)
(D)Flux Method = ×100
/0%&+1% !'. '( 3'&4%&5
(!'. '( )%*+&+,-'.<!'. '( &%*7+8%#%.,)
(E)Flux Method = ×100
/0%&+1% !'. '( 3'&4%&5
>*%.-.1<?7'5-.1
(F) Average worker = @
A+$'"& B"&.'0%& 6+,%
(G)Equivalent Annual LTR = !'. '( C+D5 -. ,E% *%&-'C ×365
 Employee Cost & Direct Expenses
2. Idle Time
Burden Pass to consumer
Total hour paid
Normal idle hour
By deducting them from
total hours and increasing
rate per hour
Idle Hours

Burden pass to owner

Hours worked Abnormal idle hours

By transferring them to
P&L A/c
 Employee Cost & Direct Expenses
3. Statement of Wage Rate Calculation
Particulars Amount (`)
Basic Wages --
Dearness Allowance --
Bonus --
Commission --
Perquisite --
Overtime --
Any other allowances --
Employer contribution to PF/ESI etc. --
Gross Wages --
Effective Working Hours (Total hours – Normal Idle Hours) --
Wage rate per hour --
 Employee Cost & Direct Expenses
4. Net Wages or In-hand wages calculation

Particulars Amount (`)

Gross Wages --
(-) Employee contribution to PF/ESI etc. --
(-) Employer contribution to PF/ESI etc. --
(-) Tax deducted at source (TDS) --
(-) Professional Tax --
(-) Any other deduction --
Net Wages Payable --
 Employee Cost & Direct Expenses
5. Overtime
It is hours worked over and above the normal working hours.

6. Overtime Premium
Ø It is the extra amount of wages paid over the normal rate.
Ø According to Factories Act of 1948, a worker is entitled for overtime at double the rate of his wages if he
works more than 9 hours in a day or more than 48 hours in a week.

7. Treatment of Overtime Premium

Ø If it is restored at the desire of the customer, then the entire amount of overtime should be charged to the job
directly.
Ø If it is due to a general pressure of work to increase the output, the premium as well as overtime wages may be
charged general overheads.
Ø If it is due to the negligence or delay of workers of a particular department, it may be charged to the concerned
department.
Ø If it is due to abnormal reasons, it may be charged to costing profit and loss account.
 Employee Cost & Direct Expenses
8. Wage Payment System
(A) Time Rate System
Wages = No. of hours worked ´ Rate per hour
(B) Piece Rate system
Wages = No. of units produced ´ Rate per unit (or Piece rate)
 Employee Cost & Direct Expenses
9. Incentive Plans
(A) Halsey Plan
Total Earnings = (H × R) + [50% × (S – H) × R]
(B) Halsey-wier Plan
Total Earnings = (H × R) + [33.33% × (S – H) × R]
(C) Rowan Plan
)FG
Total Earnings = (H × R) + ×'×(
)
Where, H = Actual hours worked
R = Rate per hour
S = Standard hours or time allowed
(S – H) = Time saved

10. Effective Hourly Rate of Earning

B',+7 3+1%5
Effective hourly rate of earning =
/8,"+7 E'"&5 H'&4%C
 Employee Cost & Direct Expenses
11. Direct Expenses
Ø Royalty for production
Ø Cost of utilities such as power & fuel, steam etc.
Ø Fee for technical know-how
Ø Cost of product/service specific design or drawing
Ø Cost of product/service specific software
Ø Amortized cost of moulds, patterns, patents etc.
Ø Job charges paid to job workers
Ø Hire charges paid for hiring specific equipment
Ø Other expenses which are directly related with production