Presentation Slide on Labor cost

Cost
PRESENTATION ON
GROUP MEMBERS
Bony Yamin [ 2020205050011]
Rayhan Sharif [10]
MD. Jahidul Islam [12]
Maksuda Akter [13]
Merina Akter Mim [14]
Ishrat Jahan Eti [15]
Anamika Sarkar Ritu [18]
Simanta Kumar Saha [23]
Sozib Sarkar [24]
Anik Kumar Ghosh [27]
Shree Xenon Mondol [20]
SUBMITTED TO
Md. Monowar Uddin Talukdar
Lecturer
Department Of Business Administration
Khwaja Yunus Ali University
Khwaja Yunus Ali University

OBJECTIVE
 What is Labor cost & it’s types.
 Simple formula for cost of Labors.
 Labor Cost Percentage Formula
 Organization for accounting and
control of labor cost.
 Idle time cost.
 Overtime cost.

Labor cost is the total of
wages, benefits, and payroll
taxes paid to and for all
employees. It’s divided into
two categories: Direct and
Indirect labor costs.
Labor cost is an important value that finance and accounting professionals calculate
to determine the direct and indirect price that a company pays for labor. The direct
cost of labor includes the cost of wages and benefits for employees who are directly
involved in producing the product or service commodity.
What Is Labor
Cost & types?

Direct and Indirect
labor cost
Costs of labor can be categorized into two main
categories, direct (production) and indirect (non-
production) cost of labor. Direct costs include
wages for the employees that produce a
product, including workers on an assembly line,
while indirect costs are associated with support
labor, such as employees who maintain factory
equipment.
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5/30/2021
ADD A FOOTER
Base of Difference Direct Labor cost Indirect Labor cost
Meaning Direct labor cost is that cost which is directly involved in the
production.
Indirect labor cost is that cost which is not directly involved in the
production.
Volume of production Direct labor cost depends on the volume of production. Indirect labor cost does not depend on volume of production.
Separation It can be separated in cost, cost center, or unit cost. It can’t be separated.
Payment Payment of direct cost is a direct expenditure. Payment of indirect labor is an indirect expenditure.
Used It is used to convert raw materials into finished goods. It is used in the production process.
Part This is a part of prime cost. It’s a part of work, office, selling and distribution overhead.

Formula’s of Cost of Labor
 Simple formula for cost of labor
Cost of Labor = (total sales x percentage of labor) / hourly average of worker salaries
Example: If the company's total sales were $1,500,000, the percentage of the labor equaled 12%,
and the average hourly rate of labor was $12.90, we would arrive at labor costs this way:
($1,500,000 x .12) / $12.90 = (180,000) / $12.90 = $13,953.49.
 Labor Cost Percentage Formula
Labor Cost Percentage = (Total Labor Cost / Total Sales) x 100
Example: A restaurant with an annual labor cost of $84,000. Now let’s say total sales revenue for
the year was $800,000.
Labor cost percentage = (84000 / 800000) x 100
Labor cost percentage = 10.5
And here’s the labor cost percentage formula for calculating labor cost as a percentage of total
operating costs:
Labor Cost Percentage = (Total Labor Cost / Total Operating Costs) x 100
the total labor cost figure of $7,000 per month. And let’s say total operating costs are $12,000 per
month.
Labor cost percentage = (7000 / 12000) x 100
Labor cost percentage = 58.3
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Organization for accounting and control of labor cost
Departments
Idle Time
‘Idle time represents time lost by workers who are paid on time
bias’.
Overtime cost
Overtime cost, also referred to as premium cost, is the extra dollar
amount that an employee is paid for overtime hours worked
Fringe benefits
Almost any non-salary benefit provided by an employer to an
employee is considered a "fringe" benefit.
Labor Turnover
Labor turnover may be defined as the number of workers replaced
during a given period relative to the average labor force during the
period
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Idle Time
Idle time is the unproductive time of employees for which they are still paid. The idle occasion is
usually caused by a sudden fault in machine or tools, power failure, deficiency of orders for the
merchandise, inefficient work booking, defective materials along with a shortage of raw materials, etc.
Causes
 Productive
 Administrative
 economic
Treatment
 Normal
 Abnormal
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Exercise problem & Solution
 Question:
Mary Adams is employed by Acme Company. Last week she worked
34 hours assembling one of the company’s products and was idle 6
hours due to material shortages. Acme’s employees are engaged at
their workstations for a normal 40-hour week. Ms. Adams is paid
$15 per hour.
Required:
Allocate Ms. Adams’s earnings for the week between direct labor
and manufacturing overhead.
Direct labor $15×34 hours $ 150
Manufacturing Overhead: (Idle time $15 × 6 hours) $90
Total cost for the week $ 600
÷
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Overtime cost
The total amount of
compensation a company pays
to its employees as overtime
during a specific period. It is a
very useful HR metric that helps
strategically manage the
workforce needs of a company.
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Disadvantage
 Excessive labor cost.
 Decrease in labor productivity.
 Increase in lighting cost.
 Effect on health of workers.
 Increase in wages.
Treatment
 When overtime is job specific.
 When overtime is due to general
pressure.
 When overtime is due to abnormal
reasons

Exercise problem & Solution
 Question:
John Olsen operates a stamping machine on the assembly line of
Drake Manufacturing Company. Last week Mr. Olsen worked 45
hours. His basic wage rate is $14 per hour, with time and a half for
overtime (time worked in excess of 40 hours per week).
Required:
Allocate Mr. Olsen’s earnings for the week between direct labor and
manufacturing overhead.
Direct labor ($14 × 45 hours) $630
Manufacturing overhead (overtime $7 × 5 hours) $35
Total cost $665
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Thank you!
from
Bony Yamin’s Team

Presentation Slide on Labor cost

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Presentation Slide on Labor cost