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Cost Accounting – I

Notes (vi) Cost of machine and tool breakage, and
(vii) Cost of additional supervision of new workers.

The total cost of labour turnover will be reflected in one or more of the items. Management
has to trade-off between preventive costs and replacement costs so as to keep the total costs
of labour turnover at a minimum.

6.2 Labour Cost Management

Labour cost management is a complex process because it represents a sensitive area involving
human behaviour. In labour cost management, we discuss:

Recruitment

Every business or industry should have a recruitment policy of its own. However, certain factors
will govern the recruitment policies of an industry or organization. These factors are:
(i) Categories of manpower required,
(ii) Type of activities undertaken,
(iii) Seasonal nature of activities,

(iv) Volume of operations,
(v) Rate of labour turnover,
(vi) Legal restrictions arising out of a labour legislation, and
(vii) promotions and retirement.

Having decided upon recruitment policies, the next step is to set up a proper agency for carrying
out these policies. This function is usually assigned to the establishment or personnel department.
Sometimes, there is a separate recruitment committee which is composed of several departmental
heads. Again, in a small industry or organization, recruitment procedures are likely to be informal
and may often be executed by the top management of the industry or organization personally.

Upon recruitment, a copy of the recruitment letter containing all the terms and conditions must
be forwarded to:
(i) Time office for recording attendance, and
(ii) payroll department for authorizing enrolment in the payroll.

One copy of the appointment letter is usually retained in the personnel department of the
organisation for maintaining the service record. As in the case of other management activities,
recruitment policies should be reviewed and evaluated periodically. A comprehensive evaluation
programme will seek to assess the relative success in performance of various categories of
employees with reference to the source of their recruitment.
Time Keeping

Time-keeping is concerned with recording of worker’s time. The recording of time put in by
workers is required not only for attendance and wage calculation purpose but also for the
purpose of cost calculation. Following are the main features of time keeping:

(i) Employees’ attendance in and out of a particular department, and
(ii) Employees’ attendance in and out of the factory gate.

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