Idle Time B Com Notes | EduRev

Cost Accounting

Created by: Universal Academy

B Com : Idle Time B Com Notes | EduRev

The document Idle Time B Com Notes | EduRev is a part of the B Com Course Cost Accounting.
All you need of B Com at this link: B Com

Meaning of Idle Time:
If workers are paid on the basis of time, some difference may arise between the time for which they are paid on the basis of time and the actual time they spend on production. The difference is called Idle Time, i.e., the employer pays but, in return, derives no benefit. In short, it explains the time for which wages are paid but produce no output or workers remain idle.
Idle Time = Total Time spent by a worker – Actual Time spent on production.

Causes of Idle Time:
There are three causes, viz.,
(a) Administrative Causes,
(b) Production-related Causes and,
(c) Economic Causes.

(a) Administrative Causes:
These are:
(i) Appointing skilled workers in anticipation of future growths.
(ii) Unwilling to discharge skilled worked during depressions.

(b) Production-related Causes:
These are:

(i) Breakdown of Plant/Machinery.
(ii) Waiting for work/raw materials/machines.
(iii) Lack/inadequate of power facility.
(iv) Waiting for instruction from superiors/supervisors.

(c) Economic Causes:
These are:

(i) Cyclical fluctuations for which demand of the product reduces.
(ii) Demand for seasonal product decrease during off-season.
(iii) General recession in economy.
(iv) Fall in demand as a result of strike/lock-out, etc.

Types of Idle Time:
1. Normal Idle Time:

Normal idle time is unavoidable loss of labour hours arising out of usual course of business.
It includes:
(i) Tea break, lunch break or time lost from factory gate to actual place of work;
(ii) Time lost during the period between finishing of one job starting of another one;
(iii) Setting the machines/tools or implements;
(iv) Time lost for overcoming fatigue.
To some extent some of the above idle time may be controlled. Cost of normal idle time should be charged to factory overheads. But if it is found that a particular department is responsible for such loss, the cost of idle time should be charged to that particular department.
Cost of normal idle time should be charged to cost of production simply by inflating the hourly rate of wages, e.g. if idle time is considered as 10% of total labour hours and wages are paid for 8 hours Rs. 288, Cost of labout p.h. in that case will be  = Rs. 288/7.2 hrs = Rs. 40 per hour.

2. Abnormal Idle Time:
Abnormal Idle Time is that time the wastage of which can be avoided if adequate precautions are taken.
Some of them are:
(i) Breakdown of machinery;
(ii) Power failure;
(iii) Non-availability of materials;
(iv) Strikes and lockout;
(v) Fire, Flood and other hazards;
(vi) Bottlenecks in production;
(vii) Stoppage of work as a result of bad policy decisions by the management;
(viii) Excessive time taken to rectify the defects;
(ix) Excessive automation, etc.

Treatment of Abnormal Idle Time:
Abnormal Idle Time can be treated in the following two methods:
(a) Costing Profit and Loss Account Method:
Cost of abnormal idle time should be transferred or debited to Costing Profit and Loss Account. Under this method, cost of abnormal idle time is not treated as a cost but the same is treated as a loss to the firm.
(b) Overhead Method:
Under this method, abnormal idle time is a part of factory overhead. Thus, cost of idle time should be apportioned among the different departments to have an idea about the same which is very helpful to the management to take adequate remedial measures.

Control of Idle Time:
Idle time can be controlled thus:
(i) There must be planned production and proper supervisions, so that idle time will be reduced to a minimum level.
(ii) Jobs in hand should be planned in such a manner that the workers do not have to wait for the work.
(iii) Instructions and drawing must be clear so that the workers are not confused or have to wait for clarifications.
(iv) Proper inspection and maintenance of the power plant must be made to avoid frequent power failure.
(v) Timely supply of materials, proper maintenance of plant and machinery, adequate power supply will no doubt reduce the abnormal idle time.

Treatment of idle time:
Idle time means the amount of time the workers remain idle in a normal working day. The idle time is usually caused by a sudden fault in machine or equipment, power failure, lack of orders for the product, inefficient work scheduling, defective materials and shortage of raw materials etc. The cost associated with idle time is treated as indirect labor cost and should, therefore, be included in manufacturing overhead cost. For example, the normal weekly working hours of a worker are 48 and he is paid @ $8 per hour. If he remains idle for 6 hours due to power failure, then the cost of 42 hours would be treated as direct labor cost and the cost of 6 hours (idle time) would be treated as indirect labor cost and included in manufacturing overhead cost.
Idle Time B Com Notes | EduRev

Treatment of overtime premium:
Overtime premium is the amount that is paid, for the overtime worked,  in excess of the normal wage rate. Like idle time, overtime premium is also treated as indirect labor cost and  included in manufacturing overhead cost. For example, a worker normally works for 48 hours per week @ $8 per hour. In a particular week, if he works for 52 hours and company pays him $12 for every hour worked in excess of 48 hours, the allocation of the labor cost of the worker would be made as follows:
Idle Time B Com Notes | EduRev
The amount of $16 is overtime premium and is a part of manufacturing overhead cost.

Treatment of labor fringe benefits:
Fringe benefits are benefits that employers provide to employees in addition to normal salaries or wages. Examples of fringe benefits are hospitalization, insurance programs, retirement plans, paid holidays and stock options etc. Most of the companies treat labor fringe benefits as indirect labor and, therefore, include them in manufacturing overhead costs.
A few firms treat direct labor related fringe benefits as addition to direct labor cost which is considered a more superior practice.
The above information has been summarized below:
Idle Time B Com Notes | EduRev

Dynamic Test

Content Category

Related Searches

Exam

,

Important questions

,

Previous Year Questions with Solutions

,

video lectures

,

Free

,

Idle Time B Com Notes | EduRev

,

Idle Time B Com Notes | EduRev

,

ppt

,

Extra Questions

,

study material

,

practice quizzes

,

Viva Questions

,

mock tests for examination

,

MCQs

,

Summary

,

shortcuts and tricks

,

pdf

,

Idle Time B Com Notes | EduRev

,

Sample Paper

,

Objective type Questions

,

Semester Notes

,

past year papers

;