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BBA Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Cost Accounting Topic is ‘Overtime Premium’ Shorts Notes

Overtime Premium

Overtime premium is paid to the workers for the extra time worked than the normal working hours specified in the factories Act, 1948 or work agreement with the union. The extra time is paid at a higher rate than the normal time rate, for example, if a worker works beyond 8 hours in a day or 48 hours in a week, he is paid with double wages for the extra time worked. The overtime wages consists of two elements.

  1. Normal wages for extra time and,
  2. Additional wages paid for the overtime worked

The accounting treatment of overtime premium is given below:

  • Overtime hours at the normal rate are treated as direct labour cost and charged to production on the same basis as time worked during normal hours but the premium paid during the overtime period is not a direct charge against production but is recovered as production overhead through overhead recovery rate.
  • Where the overtime is worked on a specific job to meet the time schedules or to carry out specific rush orders for which extra price is recovered, then the entire labour cost can be charge as direct labour cost to that job.
  • If overtime wages paid due to negligence or delay of worker of a particular department, it may be charged to the concerned department.
  • If the overtime premium is paid due to abnormal causes, it should be charged to costing profit and loss account.

Control of Overtime Premium

To control the overtime premium the following may give due consideration:

  • Careful production planning and scheduling.
  • Analysis of reasons for overtime working.
  • Frequency of overtime working in each department.
  • If it is due to shortage of labour, steps may be taken to recruit more workers.
  • If overtime working is due to limiting machine hours available in the production departments, purchase extra machines, working extra shift, sub- contracting etc. may be considered.
  • Appropriate authority should sanction for overtime working.
  • Maintenance of proper records sanction for overtime working and payments made for it will help in control of overtime.
  • Only in urgencies and real necessities the overtime workers may be engaged otherwise the practice of overtime working should be discouraged.

Disadvantages of Overtime Working

  • The overtime working increases the fatigue and reduces the efficiency of the workers causing low productivity and higher production cost.
  • The workers will try to avoid work during normal time and prefers to work overtimes for extra earnings.
  • If overtime working frequently allowed, it becomes a practice of working and workers may desist for any steps to control overtime.
  • It increases the administrative overhead costs.
  • Due to overtime working, it may not be possible for carry maintenance work of the plant and machinery and it may lead to sudden major breakdown of plant and machinery causing stoppage of production.
  • The continuous overtime working may lead to health hazards to workers and it may increase the accident rate at work place.
  • The uneven distribution of overtime among the workers may cause discontent in other workers.
  • It increases the rate of depreciation of plant and machinery.

Bba Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Cost Accounting Topic is ‘Casual Worker and Out Worker’ Shorts Notes

Casual Worker and Out Worker

A casual worker is engaged for a short period to carry out the work on temporary basis and he is paid wages on daily or weekly basis. His name is not entered on the rolls of the personnel. He is not allowed of any benefits that a permanent or regular worker gets.

An out worker is one who does work not in the factory premises but works at his home or at site of the factory. The raw materials and other necessary tools for carrying the work are provided by the employer. The out workers are employed in certain specialised jobs and contracts. Generally the payment for the out worker is on the basis of output or jobs completed.

Bba Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Cost Accounting Topic is ‘Treatment of Special Labour’ Shorts Notes

Treatment of Special Labour Costs

Cost of Apprentice

The costs incurred on apprentice and training is treated as production overhead since these costs are a part of the normal industrial activity.

Employee Welfare Costs

In an organisation some of the expenses are incurred on canteen, hospital, recreation, transport etc. for the welfare of the employees. These expenses are separately recorded and accumulated as welfare department costs. These welfare department costs are again apportioned to other cost centres on suitable basis like total wages or number of employees of each cost centre.

Fringe Benefits

The employees are paid additional benefits like leave with pay, contributions to the schemes like provident fund, E.S.I., medical reimbursement, subsidised canteen facility, leave travel concession, group insurance, etc. these benefits are called ‘fringe benefits’. If these benefits are provided for the factory personnel, they are treated as production overhead and are apportioned to all cost centres, including both production and service cost centres on the basis of number of employees in each centre. The fringe benefits provided to the office staff, sales staff and distribution staff should be treated as administration, selling and distribution overheads respectively.


If bonus is paid to the workers on the basis of their productivity, such bonus is treated as production overhead and allocated to different cost centres on the basis of actual payments made to the workers. If the bonus is a profit sharing bonus, payable compulsorily under the payment of bonus Act, depending on the profits earned by the organisation, a minimum bonus of 8.33% is payable irrespective of the profit or loss of the concern, and this is to be included in direct labour cost. Any amount of bonus payable in excess of the minimum requirement under the statute is considered as an appropriation of profit and it may be charged to profit and loss account. The total amount of bonus is allowed as a charge against profit and it may also be treated as a direct labour cost and it is allocated to different cost centres as production overhead.


The amounts of gratuity payable to the employees depend on the wages and the period of service in the organisation. it is not appropriation of profit and hence it should be treated as part of production overhead.

Bba Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Cost Accounting Topic is ‘Incentive to Indirect Workers’ Shorts Notes

Incentive to Indirect Workers

In some organisations where the work of indirect workers will have impact on the efficiency of direct workers. In order to improve the overall efficiency, an incentive will also be given to the indirect labour. For example, incentives to stores department staff, inspection staff, maintenance staff, material handling staff etc. the incentive paid to the indirect workers is treated as production overhead.

Indirect Incentive to Direct Workers

The indirect incentives that are generally paid to the direct labour include the following two types:

  1. Monetary incentives like profit sharing co – partnership etc.
  2. Non – monetary incentives like medical and canteen facilities, free uniform, comfortable working conditions.

The distinction between incentive to indirect workers and indirect incentive to direct workers is given below:

Incentive to indirect workers

  1. It is paid to indirect workers.
  2. The incentives are in the monetary form payable immediately.
  3. It is paid to assist the direct workers in performance of duties and to improve overall efficiency of the firm.
  4. It is not possible to set any time standards in fixing this incentive.
  5. It is treated as production overhead.

Incentive to direct workers

  1. It is paid to direct workers.
  2. The incentives would be in monetary form payable in some future period or in non – monetary form (fringe benefits).
  3. It is specifically meant for improving the productivity of direct labour.
  4. It can be linked to time standards and productivity of the organisation.
  5. It is treated as welfare expenses and can be apportioned to cost centres and absorbed into product cos.

Bba Costing Accounting Topic Wise Short Notes of Direct Labour Accounting And Control

Bba Cost Accounting Summary of ‘Direct Labour Accounting and Control’


    • Labour cost includes salaries, wages, bonus, dearness allowance and other monetary benefits like employer’s contribution to PF, ESI, pension, gratuity, non – monetary benefits like subsidised food, medical facilities, free or subsidised housing etc.
    • Payroll accounting is concerned with the maintenance of records for the amounts due to employees and information relating to attendance, leaves, rates of pay, amounts to be deducted etc.
    • Labour cost accounting is concerned with maintenance of records for identifying and ascertaining the amount of labour cost to be charged to individual jobs and overhead accounts.
    • The important labour accounting records are clock card, daily/ weekly time sheet, job card, piece work card etc.
    • Timekeeping is the recording of attendance of a worker when he comes and leaves the factory.
    • Time booking is recording of the time spent on different jobs during the work time.
    • Labour turnover is the movement of people into and out of the organisation.
    • A high rate of labour turnover is an index of poor management and poor financial health of an organisation.
    • The labour turnover is a rate of change in the number of employees of a concern during the period under observation.
    • The separation method considers only the employees who are leaving the organisation for any reason and is ascertained by dividing the number of separations with average number of employees.
    • Under replacement rate method, the numbers of employees replaced are considered.
    • The flux rate takes into consideration both the employees joined and employees left the organisation are considered.
    • All organisations will have a certain degree of labour turnover, but a high rate of labour turnover is undesirable.
    • The causes for labour turnover may be due to pay problems, better career opportunities, internal conflict, shortage of labour, induction crisis, unsatisfactory working conditions poor HRD management etc.
    • The costs of labour turnover include training costs, recruitment costs, replacement costs, cost of defectives and scrap, loss of goodwill due to delay in exemption of jobs etc.
    • The cost of labour turnover can be classified into preventive costs and replacement costs.
    • The preventive costs are charge to departments in proportion to labour strength. The replacement costs may be directly charged to products or it may also be treated like preventive costs.
    • Idle time is the difference between the hours paid and hours worked. The difference may be due to breakdown, power failure, lack of material, lack of tools, set – up – time lack of instructions, labour inefficiency etc.
    • The wages paid for normal idle time is debited to costing profit and loss account.
    • Overtime premium is paid to workers for the extra time worked than the normal working hours.
    • The normal wages paid for overtime hours is treated as direct labour cost.
    • Overtime premium paid due to abnormal causes is charged to costing profit and loss account.
    • If overtime worked on any specific job to meet time schedules, the overtime premium is charge to that particular job.
  • The overtime working increases the fatigue and reduces the efficiency of the workers causing low productivity and higher production cost.

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