{"id":23424,"date":"2019-08-25T18:45:47","date_gmt":"2019-08-25T13:15:47","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=23424"},"modified":"2019-08-24T18:46:40","modified_gmt":"2019-08-24T13:16:40","slug":"labour-cost-management-a-brief-analysis","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/labour-cost-management-a-brief-analysis\/","title":{"rendered":"Labour Cost Management: A Brief Analysis"},"content":{"rendered":"<p>All kinds of manufacturing units irrespective of their size and capital require a worker who is termed as labor to carry out the production activities. Labor consists of the workforce who converts raw material into a finished product. These workers operate machines and perform all the necessary tasks to produce the final output. There are two types of labor; <strong>Indirect Labour &amp; Direct Labour. <\/strong>Those labors who are directly engaged in the process of conversion of raw material into a finished product are term as direct labors &amp; those who are not directly connected are term as Indirect Labour. To minimize labor turnover, the employer should provide them with attractive incentives and a satisfactory working environment. While, dissatisfied labor results in high labor turnover, high labor costs, and low-quality output. For that purpose, there should be proper planning, <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Accounting&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Accounting is the language of business, serving as the backbone of financial management and decision-making. It involves the systematic recording, analysis, and reporting of financial(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/accounting\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>accounting<\/a> &amp; controlling of labor. Read a brief analysis of <strong>Labour Cost Management<\/strong>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Meaning of Labour\nCost<\/strong><\/h2>\n\n\n\n<p>One of the major costs of production is the Labour Cost. Labour Cost is the payment made to the workers for carrying out the production activities. In simple terms, it is the <strong><em>&ldquo;payment made to workers in exchange for their services&rdquo;<\/em><\/strong>Labour cost, in general, is referred to as Wages paid to workers. Wages are one of the major elements of the cost of the production unit. Labor costs include the expenses made for direct &amp; indirect labor. Although labor cost is more than just wages paid to workers. It&rsquo;s the financial benefits provided to all the workers and labors for giving their time &amp; efforts in producing goods and services in the manufacturing unit. It is, therefore, financial compensation to compensate for their physical &amp; mental contribution in production while converting raw material to finished product. Financial benefits include monetary &amp; non-monetary benefits.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Monetary benefits include:<\/strong><\/h3>\n\n\n\n<ul><li><strong> <\/strong>Basic wages, <\/li><li>dearness allowances, <\/li><li>employer&rsquo;s contribution to provident fund, <\/li><li>production bonus, <\/li><li>Pensions<\/li><li>Profit Bonus<\/li><li>Gratuity. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Non-Monetary benefits include:&#65279;<\/strong><\/h3>\n\n\n\n<ul><li>Subsidized food, <\/li><li>Subsidized housing, <\/li><li>Subsidized education, <\/li><li>medical facilities<\/li><li>Holiday leaves<\/li><li>Recreational Facilities &amp; <\/li><li>Pay leaves.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Types of Labour Cost<\/strong><\/h2>\n\n\n\n<p><em><strong>There are the following two types of Labour Cost:<\/strong><\/em><\/p>\n\n\n\n<ul><li><strong>Direct Labour Cost:<\/strong><\/li><\/ul>\n\n\n\n<p>Direct Labour Cost is the amount paid to workers who are directly involved in the manufacturing process. It can be measured on per unit of output produced. Direct labor cost is allocated directly to the specific job, process or products produced. <strong>Direct Labour<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Labour_India\">[1]<\/a><\/sup> Costs are the part of prime cost. <\/p>\n\n\n\n<ul><li><strong>Indirect Labour Cost:<\/strong><\/li><\/ul>\n\n\n\n<p>Indirect cost is the expenditure incurred by the factory on those who are not directly connected with the production process. These are the remuneration paid to those workers who assist the direct labor in completing production processes. It can&rsquo;t be calculated directly on per unit of output produced. It forms the part of Overhead Cost. Payment made to sweepers, watchmen, cleaners, supervisors, is the example of such a form of cost.<\/p>\n\n\n\n<ul><li><strong>Controllable Labour Cost<\/strong><\/li><\/ul>\n\n\n\n<p>Such a form of labour cost can be controlled by the management during the production period and even at the time when no production is carried on. There is a fixed standard time or time rate is fixed and the labors have to complete the job or order within such allotted time. In that case, labour cost can be controlled to some extent.<\/p>\n\n\n\n<ul><li><strong>Uncontrollable Labour Cost<\/strong><\/li><\/ul>\n\n\n\n<p>Such a form of cost can&rsquo;t\nbe easily controlled by the management. The work is completed by a group of\nlabors. The efficiency of the group differs from each other. Under this labour\ncan utilize efficiency in full in the prevailing environment, and thus\naccordingly cost cannot be controlled by the management.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><a href=\"https:\/\/enterslice.com\/business-plan-consulting\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" loading=\"lazy\" width=\"730\" height=\"90\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/Business-Consultant-is-One-Call-away.jpg\" alt=\"Business plan Consulting\" class=\"wp-image-23289\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/Business-Consultant-is-One-Call-away.jpg 730w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/Business-Consultant-is-One-Call-away-300x37.jpg 300w\" sizes=\"(max-width: 730px) 100vw, 730px\"\/><\/a><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Labour Cost\nControl\/Management<\/strong><\/h3>\n\n\n\n<p>Labour cost is one of the\nmajor parts of the total cost of production. This cost may increase due to\nunnecessary wastage of material, inefficient workers, idle time, unusual\novertime work and high labour turnover. Therefore, it&rsquo;s the responsibility of\nmanagement to control labour cost by using effective techniques &amp; methods\nto ensure maximum output of best quality at lower cost by proper and full\nutilization of manpower. <\/p>\n\n\n\n<p>Labour Cost Control is\nthe methodology that makes use of system, techniques, procedure, tools, to keep\nthe labour cost of the product as minimal as possible. Labour Cost Control\nconsists of several techniques and activities that are carried in a coordinated\nmanner by every department of an organization to ensure that the best employees\nare available along with their proper utilization. It also includes the process\nof analyzing and reporting the labor cost to higher management so that they can\nmake an informed decision and plan accordingly. It&rsquo;s the system that is to be\nfollowed regularly by the management to maximize quality output and minimize\ncost. This control includes various forms, study, evaluation, and recording of\nthe activities and performances of the workers, calculating the correct amount\nof wages and distributing the same on time. Cost control is the practice of\nidentifying and eliminating the business expenses by increasing the profits and\nit starts with preparing the budgeting process.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Needs of Labour Cost\nControl<\/strong><\/h3>\n\n\n\n<p><em>The need for labour cost arises to fulfill the following\npurposes:<\/em><\/p>\n\n\n\n<ul><li>With the help of such control activities, the organization can make economic utilization of labour force in production activities.<\/li><li>Labour cost control helps in achieving the targets of maximum production at minimum cost.<\/li><li>It helps in obtaining a better quality of production with the least efforts and time of workers.<\/li><li>Labour cost control helps in reducing the per cost production of every good manufactured.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Information Required\nfor Labour Cost Management<\/strong><\/h3>\n\n\n\n<p><strong>Following is the information required to control &amp; managing labour cost:<\/strong><\/p>\n\n\n\n<ul><li>Cost of labour recruitment<\/li><li>Training cost of workers<\/li><li>Labour turnover<\/li><li>Idle Time<\/li><li>Overtime    <\/li><li>Shifts work<\/li><li>Labour efficiency<\/li><li>Number of workers<\/li><li>Wastage of material during production<\/li><li>Wages paid<\/li><\/ul>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/enterslice.com\/learning\/internal-control-system\/\">Internal Control System- Analysis of Benefits &amp; Limitations<\/a><\/mark>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Steps of Cost Control<\/strong><\/h2>\n\n\n\n<p>Cost control involves the\nfollowing step with certain aspects of management:<\/p>\n\n\n\n<ul><li><strong>Planning:<\/strong><\/li><\/ul>\n\n\n\n<p>Foremost a set of plans and targets is prepared in the form of budget, standards, and estimates.<br><\/p>\n\n\n\n<ul><li><strong>Communication<\/strong>:<\/li><\/ul>\n\n\n\n<p>The next step is to communicate the plan made in the first step to the one who is going to execute the plan.<br><\/p>\n\n\n\n<ul><li><strong>Motivation<\/strong>:<\/li><\/ul>\n\n\n\n<p>After the plan is\nexecuted, performance evaluation takes place in this stage. Costs are\ncalculated and details about achievements are collected. <\/p>\n\n\n\n<ul><li><strong>Appraisal<\/strong>:<\/li><\/ul>\n\n\n\n<p>A comparison is made with\nthe actual performances. Deficiencies if any are noted and accordingly\ndiscussions are made to overcome such Deficiencies.<\/p>\n\n\n\n<ul><li><strong>Decision making:<\/strong><\/li><\/ul>\n\n\n\n<p>Finally, the reported differences and deficiencies are reported to the management for its decision making. Accordingly, corrective actions are taken and a set of remedial measures are taken. <br><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Advantages of Cost\nManagement<\/strong><\/h3>\n\n\n\n<p><em><strong>Cost control has the following advantages:<\/strong><\/em><\/p>\n\n\n\n<ul><li>It helps the organization to enhance its profitability &amp;      competitiveness<\/li><li>Without cost control, there may be a drastic fall in income irrespective of large &amp; increasing sales.<\/li><li>It is crucial for achieving greater and high productivity.<\/li><li>It helps the firm in reducing overall cost and thus accordingly      reduces the price<\/li><li>If the price of the firm is stable, it can maintain higher sales      &amp; also the employment of the workforce.<\/li><\/ul>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/enterslice.com\/learning\/cost-management-for-business-sustainability\/\">Cost Management &ndash; The Key for Business Sustainability<\/a><\/mark>.<\/p>\n\n\n\n<p><strong>FAQs<\/strong><\/p>\n\n\n\n<p><strong>Explain the types of standard used to establish cost control.<\/strong><\/p>\n\n\n\n<p>Mainly two types of\nstandards are established to control labour cost:<\/p>\n\n\n\n<ul><li>Internal<\/li><li>External<\/li><\/ul>\n\n\n\n<p>Internal standards are\nused to evaluate intra-firm cost elements, on the other hand, external\nstandards are applied to compare the performances with other organizations.<\/p>\n\n\n\n<p><strong>What is the project cost management in the 4-step process?<\/strong><\/p>\n\n\n\n<ul><li>Resource Planning<\/li><li>Estimation of cost<\/li><li>Cost budgeting<\/li><li>Cost control<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>All kinds of manufacturing units irrespective of their size and capital require a worker who is termed as labor to carry out the production activities. Labor consists of the workforce who converts raw material into a finished product. These workers operate machines and perform all the necessary tasks to produce the final output. There are [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":23459,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[11],"tags":[2676],"acf":{"service_id":"0"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Labour Cost Management: A Brief Analysis - Enterslice<\/title>\n<meta name=\"description\" content=\"A Brief analysis about Labour Cost Management, including definition, types and FAQs based on how Labour Cost mamagment be effective.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/labour-cost-management-a-brief-analysis\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Labour Cost Management: A Brief Analysis - Enterslice\" \/>\n<meta property=\"og:description\" content=\"A Brief analysis about Labour Cost Management, including definition, types and FAQs based on how Labour Cost mamagment be effective.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/labour-cost-management-a-brief-analysis\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:author\" content=\"enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-08-25T13:15:47+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-08-24T13:16:40+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/Labour-Cost-Management.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Narendra Kumar","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/04\/nk-1.jpg","authorDescription":"Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.","postViews":695,"readingTime":5,"nextPost":{"id":23473,"slug":"important-policy-updates-from-finance-minister"},"prevPost":{"id":23426,"slug":"non-generation-of-e-way-bill-after-november-21-2019-in-case-of-non-filing-of-gst-return"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/Labour-Cost-Management.jpg","postTerms":"CFO Service","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/23424"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=23424"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/23424\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/23459"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=23424"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=23424"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=23424"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}