What is the most common problem in labor costing?

Lost or misplaced records are the most common problem in labor costing. Many business owners and managers often fail to keep accurate and complete records that may result in inaccurate information for processing payrolls which could lead to severe consequences such as penalties or lawsuits.

What is labor costing?

Labour costing is a method of charging the manufacturing cost to the jobs manufactured.

What is the formula for labor costing?

Total labor cost for a period divided by units produced during the same time period. Labor rate x units produced = labor cost

What are the types of labor costs?

The four types of labor costs are variable labor, fixed labor, direct labor, and indirect labor.

What are the advantages of labor costing?

Labor costing is more accurate than job order costing because it charges costs directly to the jobs manufactured.

Labor Costing: Practical Questions With Answers

Question 1

Consider the following information concerning the monthly remuneration of three workers:

Standard production per month per worker 1,000 units

Actual production during the month: A, 850 units; B, 750 units; and C, 950 units.

Piece work rate is $0.10 per unit (actual production)

Additional production bonus is $10 for each percentage of actual production that exceeds 80% over standard

Dearness pay fixed at $50 per month

Required: Calculate the total monthly remuneration for three workers: A, B ,and C.

Solution

Question 2

Production sections of a factory working on a job order system pay their workers under the Rowan Premium Bonus Scheme.

Workers are also entitled to a dearness allowance of $25 per week of 48 hours.

A worker's basic wage is $4 per day (8 hours), and the timesheet for a week is summarized below.

Job No.	Time Allowed	Time Taken
1	25 hours	20 hours
2	30 hours	20 hours

Idle time (waiting) 8 hours.

Required: Calculate the gross wages that a worker earns for the week.

Solution

	Job No. 1	Job No. 2
Time Allowed	25 hrs.	30 hrs.
Time Taken	20 hrs.	20 hrs.
Time Saved	05 hrs.	10 hrs.

Bonus Hours (Rowan Plan)

Gross Earnings

Job No. 1	$22.00
Job No. 2	$23.33
Idle time wages (8 x .50)	$4.00
Dearness allowance for idle time (8 x 0.50)	$4.00
Total wages	$53.33

Calculation

Question 3

An operator engaged in machining components receives an ordinary day rate of $160 per day for an 8-hour day.

The standard output for machining the components has been fixed at $0.80 per hour (time fixed for premium bonus). On a certain day, the worker's output on the machine is 800.

Required: Find the labor cost per 100 pieces and the wages earned under the following conditions:

If a bonus of $19 is paid per 100 extra output

If paid for on straight piece work basis at the standard rate

If Halsey Premium Bonus System is in use

Solution

1. Bonus of $19 is paid per 100 extra output

Standard output per hour	= 80 pieces
Standard output per day or for 8 hours	= 80 x 8	= 640 pieces
Actual output in 8 hours or in a day	= 800 pieces
Extra output	= 800 - 640	= 160 pieces

Bonus

For 100 extra output, bonus is	= $19.00
For 1 extra output, bonus is	= $19.100
For 160 extra output, bonus is	= (19 / 100) x 160	= $30.40
Regular wages for 8 hours	= $160.00
+ Bonus	= $30.40
Total wages	= $190.40

Per 100 Piece Wages

For 800 pieces wages	= $190.40
For 1 piece wages	= $190.40/800
For 100 pieces wages	= (190.40 / 800) x 100 = $23.80

2. Straight Piece of Rate

Per piece wages	= 160 / 640	= $0.25
For 800 pieces wages	= 800 x 0.25	= $200
Per 100 pieces wages	= (200 / 800) x 100	= $25

3. Halsey Premium Bonus System

Standard time for 640 pieces = 8 hrs.

Standard time for 1 piece = 8 / 640 hrs.

Standard time for 800 pieces = (8 x 800) / 640 = 10 hrs.

Time taken = 8 hrs.

Time saved or bonus hours = 10 - 8 = 2 hrs.

Formula for Halsey Premium Scheme

50% of time saved = 2 x (50 / 100) = 1 hour

Regular wages = $160.00

Bonus = (1 x 160) / 8 = $20.00

Total earnings = 160 + 20 = $180.00

Per 100 piece earnings = (180 / 800) x 100 = $22.50

Question 4

The time and motion study department of Moonlight Corporation has informed you that standard production on a specific item is 40 units per hour.

During the last week of December, a worker's record shows the following for each 8-hour day:

Monday	280 units
Tuesday	300 units
Wednesday	320 units
Thursday	Factory closed
Friday	360 units
Saturday	400 units

Required: Prepare a schedule showing the worker's daily earnings, the effective hourly rate, and the labor cost per unit under the following conditions:

Company uses the Halsey Premium Plan with a guaranteed rate of $1.00 per hour and a premium of 50% of the time saved on production in excess of standard.

Company uses Tailor's Differential Piece Rate System with rates as follows: for standard production and above, 4 cents per unit; and below standard production, 3 cents per unit.