The following points highlight the four main types of accounting of labour cost.
The types are:
1. Payroll Accounting
2. Labour Cost Accounting
3. Time Keeping
4. Time Booking.
Type # 1. Payroll Accounting:
It is concerned with the maintenance of records for the amounts due to the employees like salaries, wages, allowances, contributions to provident fund and E.S.I, etc. and the deduction to be made from the employees’ earnings. Payroll accounting requires the information relating to employee’s attendance, leaves, rates of pay, amounts to be deducted etc.
Type # 2. Labour Cost Accounting:
It is concerned with identifying the amount of labour cost to be charged to individual jobs and overhead accounts. For this purpose, information relating to the time spent on each job or process or number of units produced is obtained from the job cards, piece work tickets etc. The idle time analysis is also necessary for labour cost accounting.
The main objective of it is to record the time spent by all workers on each activity on a separate job card or time sheet and then apply the appropriate hourly rate. The labour costs are then charged to each of these activities. The job cards, time sheets, idle time cards are the important documents for analyzing production labour costs to various jobs and overhead accounts.
Type # 3. Time Keeping:
Time keeping means to note the attendance of workers for wage payments. It is the marking of attendance of a worker when he comes and leaves the factory. This record is generally kept at the factory gate and the workers coming in and going out have to record their time in it. Based on their attendance in the factory, they receive the wages.
The prime objectives of time keeping are as follows:
(a) Preparation of Payroll:
The wage bills of the organization are prepared by the payroll department on the basis of information given by the time keeping department.
(b) Computation of Cost:
The Costing department will compute the labour cost of different jobs, departments, cost centres etc. basing on the data of time spent provided by the time keeping department.
The time record will give us an idea about the total time for which the workers were present in the factory and for which they are paid. There are various methods of time keeping – hand written record, disc or token system, punch card system etc.
With the advancement of technology, the computers are also being used for time recording and analysis. The person who looks after time keeping is called ‘time keeper’ and his place of work is called ‘time office’. The time records are the basic data used for calculation of salaries and wages, overtime premium etc.
Type # 4. Time Booking:
It is necessary to account for labour cost against each job, department, process, contract, cost centre etc. for which time booking records are kept to ascertain the labour time spent. Time booking means to know how much time is effectively spent by the worker on each job or in each department or on a process or on each contract etc. It is the recording of time spent within the working day upon different jobs.
It is the keeping of record of particulars of work done, or time spent on each job, process, operation etc. It is used to ascertain the labour time spent on each job, analysis of idle time, labour cost of various jobs and products. The time booking record is kept in the form of time cards for each worker, recording therein the actual time spent by him on the work.
The objectives of time booking are as follows:
(a) To ascertain the labour time spent on the job and the idle labour hours.
(b) To ascertain labour cost of various jobs and products.
(c) To calculate the amount of wages and bonus payable under the wage incentive scheme.
(d) To compute and determine overhead rates and absorption of overheads under the labour and machine hour methods.
(e) To evaluate the performance of labour by comparing actual time booked with standard time.