SUBJECT : COST AND WORKS ACCOUNTING - II - CLASS:SYBCOM SEM-IV,2019pattern Prepared by Prof. P. S. Shinde - DNYANSAGAR AND ARTS AND COMMERCE ...
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DNYANSAGAR AND ARTS AND COMMERCE COLLEGE,
BALEWADI, PUNE 45
SUBJECT : COST AND WORKS ACCOUNTING – II
CLASS : SYBCOM SEM- IV, 2019 pattern
Prepared by
Prof. P. S. Shinde
UNIT - I Material Accounting
Introduction The term materials refers to raw materials used for production, sub-assemblies and fabricated parts. Inventory means the raw materials, work-in- process goods and completely finished goods that are considered to be the portion of a business’ assets that are ready or will be ready for sale.
Material Control
• Material Control aims at efficient purchasing of materials, their
efficient storing and efficient use or consumption.
Objectives in a good system of material control can be:
• Materials of desired quality available when needed for efficient and
uninterrupted production.
• Material to be purchased only when need exists and in economic
quantities.
• Purchase of materials to be made at the most favorable prices under
the best possible terms.
• Materials are protected against loss by fire, theft, etc.
• Materials should be stored in such a way that they provide minimum
of handling and cost.
Pricing issues of material Pricing of materials may change from time to time. Materials are usually acquired by several deliveries at different prices. Actual costs can then take on several different values. Therefore, the materials pricing system adopted should be the simplest and the most effective one.
Methods of stock valuation First-in-first-out(FIFO) Last-in-first-out(LIFO) Weight average cost (WAVCO) Specific identification/unit cost method
First-in-first-out This method assumes that the first stock to be received is the first to be sold. The cost of materials used is based on the oldest prices. The closing stock is valued at the most recent prices.
Last-in-first-out (LIFO) This method assumes that the last stock to be received is the first to be sold. Therefore, the cost of materials used is based on the most recent prices. The closing stock is valued at the oldest prices.
Weight average cost (WAVCO) This method assumes that the cost of materials used and closing stock are valued at the weighted average cost.
Specific identification/unit cost method This method assumes that each item of the stock has its own identity. The costs of materials used and closing stock are determined by associating the units of stock with their specific unit cost.
Economic Order Quantity (EOQ)
EOQ is the order quantity that minimizes total inventory
carrying costs and ordering costs.
Ordering costs are costs that are incurred on obtaining
additional inventories. They include costs incurred on
communicating the order, transportation cost, etc.
Carrying costs represent the costs incurred on holding
inventory in hand. They include the opportunity cost of
money held up in inventories, storage costs, spoilage costs,
etc.
EOQ = 2*O*Q
C
Where EOQ = Economic Order Quantity
O= order cost per order
Q = Annual quantity required in units
C =Carrying cost per unit perannumLevel setting It is to determine the correct or most optimal stock level so as to avoid overstocking or under- stocking of materials. These levels are known as the Maximum, Minimum and Re-order levels.
Re-order level The level of stock of material at which a new order for the material should be placed. The formula: Re-order level = (Maximum usage *Maximum lead time )
Maximum level
The maximum stock level is highest level of stock
planned to be held.
Any amount above the maximum level will be
considered as excessive stock.
The formula:
Max level = re-order level + Re-order quantity(EOQ) –Min
anticipated usage in Minimum leadMinimum level/Safety
stock
• The minimum level is that level of stock that
provides a safety buffer in the event of
increased demand or reduced receipt of stock
caused by the lengthening of lead time.
• The stock level should not be allowed to fall
below the safety stock.
Min level= Re-order level – Avg. usage in avg. lead
timeEXAMPLE Average usage 1000 units per day Minimum usage 800 units per day Maximumusage 1350 units per day Order Quantity 9000 units Delivery reliably expectedatthe beginning of the fourth day. Required: Find the three control levels.
Re-order level = (Maximum consumption *Maximum re-order period ) = 1350 units *4 = 5400 units Minimum level = Re-order level – Average usage in average lead time = 5400 units – (800 units *4) = 2200 units Maximum level = re-order level + EOQ –Minimum anticipated usage in Minimum lead = 5400 units +9000 units – (800 units *4) = 11200 units
UNIT –II
Labour Cost and
PayrollOBJECTIVES • Direct and indirect labours. • Labour turnover. • Time keeping and time booking. • Overtime. • Payroll. • Idle time • Remuneration. • Incentives plans.
Direct and Indirect labour • DIRECT • INDIRECT
Organization for accounting and control of labour cost • Departments – ✓ Personal ✓ Engineering ✓ Time keeping ✓ Payroll ✓ Cost accounting
Labour Turnover • Measurement methos 1. Seperation 2. Replacement 3. Flux
CAUSES OF LABOUR TURNOVER 1.Personal 2.Unavoidable 3.Avoidable Cause Cause Causes • Death • Due to • Lack of job security • Ill health insubordination • Lack of proper • Dislike for the job • Due to lack of training facilities • Marriage of women attention to duty • Lack of promotion workers • Due to immoral opportunities • Retirement character • Lack of medical • Family problem • Due to accidents facilities
METHODS OF WAGES PAYMENT
1. Time wage rate system :--
In this system the workers are paid on the basis of
time spent in the factory irrespective of the amount of
work done.
The total earnings are calculated as……….
( TOTAL EARNINGS = Hours Worked x Rate Per Hour )2. Piece wage rate system :--
In this system , workers are paid on the basis of work
done irrespective of time taken by the worker.
Total earnings is calculated as……..
( TOTAL EARNINGS = No. of units x Rate per unit )3. Incentive wage rate system :--
In incentive wage rate system each worker gets , not only
wages at normal rate but also receives bonus or premium for his
efficiency. This system induces the worker to produce more and
earn more.
There are two types of incentives plans as follows :-Individual Bonus Plans :--
1. Halsey Premium Plan
2. Halsey Weir Plan
3. Rowan Premium Plan
4. Taylor’s Differential Piece Rate Plan
5. Gantt Bonus Plan
6. Emerson’s Efficiency Plan
7. Merrick’s Multiple Piece Rate Plan
8. Bedeaux Point Premium Plan
9. Barth Variable Sharing PlanHalsey premium plan:--
• The worker is paid a %(30% to 90% but usually 50%) of
the time saved over the standard rate per piece.
• Standard time is fixed for each job/operation
• If the labour completes at standard time or more he is
given the standard price.
• If time saved- wages given for actual hours saved as a
bonus.
Total Earnings = (Hours Worked x Rate Per Hour) +
% (Time Saved x Rate Per Hour)Halsey weir plan :--
It is calculated as Halsey Premium Plan , the only difference
is that the rate of premium or bonus is only 30% in place of
50%.
Total Earnings = (Hours Worked x Rate Per Hour) +
30% (Time Saved x Rate Per Hour)Rowan premium plan :--
• Wages are paid on time bases.
• If worker takes standard time or more time he is paid for
the actual time taken.
• If worker takes less than the standard time , then he is paid
a bonus.
Total Earnings =(Hours Worked x Rate Per Hour) + {(Time
Saved/Time Allowed) x Hours Worked x Rate Per Hour}Taylor’s differential piece rate system :-- This system was introduced by F. W. Taylor. The main features of this incentive plan are as follows: 1)Day wages are not guaranteed, i.e. it does not assure any minimum amount of wages to workers. 2)A standard time for each job is set very carefully after time and motion studies. 3)Two piece rates are set for each job- the lower rate and the higher rate. –The lower piece rate is payable where a worker takes a longer time than the standard time to complete the work. –Higher rate is payable when a worker completes the work within the standard time.
Gantt task bonus plan :--
OUTPUT PAYMENT
- Output below standard - Guaranteed time rate
- Standard output - Time wages+a bonus of
20% normal time wages
- Output above standard - Higher piece rateEmerson’s efficiency bonus plan:--
Under this plan,
❖ Below 66.67% efficiency – no bonus , only guaranteed time rate
wages paid
❖ From 66.67% to 100%efficiency – rate of bonus increased gradually
❖ At 100% rate of bonus is 20% of normal wage rate
❖ Above 100% -- 1% of increase in bonus for 1% increased in efficiency
Total Earnings =(Hours Worked x Rate Per Hour) +
{(EBP/100) x Hours Worked x Rate Per Hour}Till here by sagar Reduction and control • Suitable wage policy. • Healthy and efficient working condition. • Impartial and systematic attitude of personal management. • Promotional opportunities. • Labour participation. • Taking welfare measures.
Time keeping & Time Booking
• Time keeping – recording arrival and departure time of workers for
attendence purpose and for calculations of wages,
• Time booking – recording time send by workers on different jobs or
processess for determining labour cost of job/process.Methods
Time keeping Time booking
• Attendence register. • Job ticket
• Token or disc method. • Daily time sheet
• Time recording cocks • Weekly time sheet
• Piece work cardOvertime ❑ Disadvantages ▪ Excessive labour cost. ▪ Decrease in labour productivity. ▪ Increase in lighting cost. ▪ Effect on health of workers. ▪ Increase in wages.
Treatment of overtime • When overtime is job specific. • When overtime is due to general pressure. • When overtime is due to abnornal reasons.
Control of overtime • All overtime premium should be authorised by works manager. • It should be seperatly recorded for future planning. • Total overtime premiun should be daily reported to the manager. • When overtime becomes permanent feature, then steps should be taken to cope wid additional work.
Payroll department • Responsible for computation and disbursement of wages payable. • Records hours worked and wages earned.
Functions of payroll department ▪ To maintain records of job classification. ▪ To verify and summarize the time of each worker. ▪ To prepare the payroll and compute the wages. ▪ To compute payroll deduction ▪ To maintain payroll record of each employee.
Payroll Department
Causual Out-worker
Wage Sheet
workersIdle Time • ‘Idle time represents time lost by workers who are paid on time bais’.
Causes
Treatment
• Productive • Normal
• Administrative • abnormal
• economicRemuneration
Time rate system
• Workers are paid according to the time for witch they work.
wages = no. of hrs worked X rate per hr
• Eg: If worker is paid at the rate of Rs 25 per hrs, his wage for the day
of 8 hrs will be ---
8 X 25 = Rs 200Time rate system Advantages Disadvantages • Simplicity • No incentives • Security of workers • Low quality • Quality of work • Extra supervision cost • Accepted by trade unions • Costing difficulties • economical • Idle time
Piece rate system
• Wages under this system are paid according to the quantity of work
done.
wages = rate per unit X No. of units produce
Eg :- if rate per unit is 17, and during a day a worker has completed 10
units , then his wage will be……
Rs 17 X 10 units = Rs 170Piece rate system
Advantages Disadvantages
• Incentives to efficient • Poor quality of work
workers.
• No security of wages.
• Increase in
• Misuse of material and equipment.
production.
• Injurious to health of workers.
• Lower cost.
• Opposed by trade unions.
• Equitable.
• Decrease in
supervision.
• Simple.Incentive planes
Halsey premiun plan & Halsey Weird
plan.
• Paid at a rate per hour.
• If worker takes standard time or more time he is paid for the actual time taken at
the time rate.
• If worker takes less than the standard time , then he is paid a bonus equal to 50%
of the time saved.
Eg:- std time = 50 hrs
Wage rate per hour = Rs 3
actual time taken =42 hrs
time saved = 50 -42 =8 hrs
Earnings = 3 X 42 + 50% 0f [8 hrs X 3]
=126+12 =Rs138UNIT –III
OTHER ASPECTS OF
LABOUR* ❑ Job Analysis “Job Analysis is the process of studying and collecting information relating to the operations and responsibility of a specific job”. ❑ Job Evaluation “Job Evaluation is a systematic and orderly process of determining the worth of a job in relation to other jobs”.
*
Job
The process of Analysi
getting detailed
information
s
about jobs. Job
Descriptions
Job
Specifications* JOB DESCRIPTION • Job Identification • Job summary • Job duties and responsibilities • Working conditions • Machines tools and equipment's • Social environment • Supervision • Related to other job.
* • Qualifications • Experience • Physical characteristics • Psychological characteristics • Social characteristics
*
Observation
Job
Analysis
Questionnaires Interview* 1. Facilitates proper publicity of job 2. Selection of psychological test 3. Facilitates purposeful interviews 4.Facilitates appropriate medical examination 5. Facilitates scientific selection placement and orientation 6.Facilitates scientific promotions and transfers
*
❑ The process of determining how much a job should
be paid, balancing two goals
▪ Internal Equity
▪ External Competitiveness*
Performs 3 main functions:
*Identifies 10-15 key benchmarks
*Selects some compensable factors
*Evaluate the worth of each job via
one of the methods.*
• Ranking or job comparison
Non- • Grading or job
quantitative classification
• Point rating
Quantitative • Factor comparison*Job Ranking ❑ The importance of order of job is judged in terms of duties, responsibilities and demands on the job holder. ❑ For example,
*
❑ System of job evaluation by which jobs are classified and
grouped according to a series of predetermined wage
grades.
❑ For example,
Class I Class II Class III Class IV
Semiskilled Semiskilled
Executives Skilled workers
workers workers
Office Manager,
Machine-
Deputy office Purchasing
operators, File clerks, Office
manager, assistant, Cashier,
Switchboard boys.
Departmental Receipts clerk.
operator.
supervisor.*
* ❑ Reduction in inequalities in salary ❑ Specialization ❑ Helps in selection of employees ❑ Standardization ❑ Improvement, Selection and promotion procedures
*
*
*
*
*
UNIT –IV
DIRECT COST ,
INTRODUCTION OF JIT,
CAM and ERP*
What is JIT?
• “A philosophy of manufacturing based on
planned elimination of waste and continuous
improvement of productivity ……”Functioning of
JIT
◼ Involves keeping stock
levels to a minimum
◼ Stock arrives just in time to be
used in production
◼ Works best where there is a close
relationship between
manufacturer and suppliers
Goods not produced unless firm
◼ has an order from a customer
Aims to get highest volume
of output at the lowest unit
◼ cost.Functioning of JIT
▪ A method of production control.
No demand - no production!
▪
Anticipated/planned consumer demand triggers production
Finished goods assembled just in time to be sold to customer
▪
Component parts assembled just in to become finished goods
Materials purchased just in time to make component parts.JIT Purchasing
▪ Just In Time (JIT) Purchasing Is Directed
Toward The Reduction of
▪ Waste (That Is Present At Incoming Inspection,
Excess Inventory and Poor Quality)
▪ DelayAdvantages of JIT ▪ Capital not tied up in stocks ▪ Less space required for stock ▪ Closer relationships with suppliers ▪ Reduced deterioration ▪ Less vulnerability to fashion and technology changes ▪ Reduction in stockholding costs ▪ Increase in cash flow
Disadvantages of JIT
◼ Danger of disrupted production due to non- arrival
of supplies
◼ Danger of lost sales
◼ High dependence on suppliers
◼ Less time for quality control on arrival of
materials
◼ Increased ordering and admin costs
◼ May lose bulk-buying discountsWhat are direct and indirect costs? • Direct costs are costs that can easily be traced to a specific project or activity. • Indirect costs are costs that can not be easily traced to a specific project or activity. • An example of direct costs for making jeans is the fabric, thread, and cost of labor used to assemble the pair of jeans. • In the same scenario, an indirect cost for manufacturing a pair of jeans is the cost of any machinery used in the assembly process that is also used to manufacture other products besides jeans. • You cannot trace the machine specifically to the production of jeans because it is used for a wide array of activities; therefore, it is an indirect cost. Other indirect costs for this manufacturing company are building rent, utilities, manager salary, and taxes.
Finding the indirect cost Case-by-case allocation Indirect cost rate After you have determined which costs are direct costs, you now know the rest of the costs are indirect costs. Discovering the indirect cost is a bit more tricky than the direct costs. Because indirect costs affect more than one project, you cannot take the total cost and allocate it to one project. Consequently, there are two main ways to discover the indirect cost of a project or activity. These methods will be discussed in the following slides.
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