Accounting and Control of Labour Cost

Accounting for labour by a manufacturer usually involves three activities:

• Time keeping;
• Computation of total payroll; and
• Allocation of payroll costs.

These activities must be performed before the payroll is recorded in the accounting records. In a large organisation, the control of labour cost involves the coordinated efforts of the following departments:–

• Personnel department: This department is responsible for manpower planning, recruitment, training, maintaining records of staff and workmen and reporting to chief inspector of factories and to top management on performance, overtime, absenteeism, leave, etc.
• Industrial engineering department: This department prepares plans and specifications of each job, supervises production activities, undertakes time and motion studies, performs job-analysis, etc.
• Time-office: This department is primarily responsible for collection of data relating to attendance, time spent on jobs or process by the workmen, and providing information on attendance and leave to Payroll department.
• Payroll department: This department is responsible for computing total and net earnings of each worker, preparation of payroll and maintenance of various records relating to payroll.
• Cost department: This department collects and classifies all cost data relating to labour utilization by departments, and allocates them to respective job or process as per available documents.