Page 116 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes (iii) Illness or accidents making the worker permanently handicapped,
(iv) Discharge due to unsuitability,

(v) Marriage and pregnancy in case of female workers,
(vi) Inefficiency of the workers,
(vii) Other reasons such as lack of housing and transport facilities, and
(viii) Immoral character of worker.

Effects of Labour Turnover

It results an increase in cost of production due to the following reasons:
(i) Cost of replacing workers, i.e., cost of selection,

(ii) Cost of training for new workers,
(iii) Loss arising out of defective work and increased wastage in production process,
(iv) Newly employed workers are likely to mishandle of machines and equipments, and
(v) With frequent changes, production planning cannot be properly executed and as a result,
there is loss in production.

Methods to Calculate Labour Turnover

There are various methods to measure labour turnover. Although the different methods give
emphasis on different aspects, it is important to point out that once a particular method has been
adopted it should be used consistently in order to facilitate comparison. Labour turnover may be
measured with the help of the following methods:

(a) Separation Method: Under separation method, labour turnover for any given period is
ascertained by dividing the total number of separations by the average number of workers
on the roll and multiplying by 100. The formula for calculation of labour turnover is:

Number of separations during a period
Labour Turnover = Average number of workers during the period × 100
(b) Replacement Method: This method takes into consideration only the actual replacement
of labour during a period irrespective of the number of workers leaving. The important
point to be noted is that only the replacements made to fill the vacancies caused by the
separations are to be considered for measuring labour turnover under replacement
method. The means, the new employees appointed during the same period for expansion
purpose should be excluded for computing the number of replacement. However, they
will be considered for computing the average number of employees.
Formula for labour turnover is:
Number of workers replaced in a period
Labour Turnover = × 100
Average number of workers in the period
(c) Flux Method : Flux method takes into consideration both the separations and replacements.
Hence, labour turnover is computed by dividing the aggregate of number of separations
and replacements during a period by the average number of employees.
Formula for labour turnover is:
Number of Separations + Number of Replacements
Labour Turnover = × 100
Average number of workers during the period

110 LOVELY PROFESSIONAL UNIVERSITY