Page 119 - DCOM202_COST_ACCOUNTING_I

Unit 6: Labour Cost

Separation Method: Notes
No. of separations
Labour Turnover Rate = × 100
Average No. of workers
3 No. of separations
=
100 600
600×3
=
100
No. of Separations = 18
Thus number of workers left and discharged = 18
Flux Method:
No. of separations + No. of workers joined
Labour Turnover Rate = × 100
Average No. of workers
10 18+No. of workers joined
=
100 600
600 × 10 = 100 (18 + No. of replacement)
6,000 = 1800 + 100 No. of replacement
6,000 – 1,800 = 100 No. of replacement
4200
No. of Replacement = = 42
100
Thus number of workers recruited and joined = 42

Cost of Labour Turnover

The cost of labour turnover can be divided under two broad categories:
(a) Preventive Costs: These are costs which are incurred by a firm to keep a contented labour
force so as to prevent excessive labour turnover. The aim of these costs is to keep the
workers satisfied so that they may not leave the industry. The costs may include:
(i) Cost of personnel administration,

(ii) Cost of medical services,
(iii) Cost of providing good working conditions,
(iv) Cost of welfare, e.g., provision for subsidized canteen, sports facilities, etc.
(v) Cost of gratuity and pension, etc.

(vi) A portion of high wages, bonuses, perquisites, etc.
(b) Replacement Costs: Labour turnover is associated with replacement. Replacement
necessitates recruitment, training and absorption of new workers. Since, the new workers
will take more time to do a job than a trained worker, there will be loss of output and more
wastage. These costs are associated with replacement of workers and it includes:
(i) Cost of recruitment, training, induction, placement, etc.

(ii) Inefficiency of new workers,
(iii) Cost of scrap and defective products of production,
(iv) Loss of goodwill and hence high costs in terms of disadvantageous labour contracts,
(v) Cost of additional compensation payable arising out of frequent accidents,

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