Page 64 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 4: Costing and Control of Labour

4.1.2 Effects of Labour Turnover Notes

It results an increase in cost of production due to the following reasons:
1. Cost of replacing workers, i.e., cost of selection,
2. Cost of training for new workers,

3. Loss arising out of defective work and increased wastage in production process,
4. Newly employed workers are likely to mishandle of machines and equipments, and
5. With frequent changes, production planning cannot be properly executed and as a result,
there is loss in production.

Example: The personnel department of an organisation gives you the following
information regarding labour. Calculate labour turnover rate using the various methods of
labour turnover.
Number of workers on the payroll:
At the beginning of the month 2,900
At the end of the month 1,100
During the month, 20 persons quit while 80 persons are discharged. 300 workers are required
during the month. Of these, 50 workers are recruited in the vacancies of those leaving while the
rest were engaged in accordance with an expansion scheme.

Solution:
Average number of workers during the month:
+
2900 1100
= = 2000
2
Labour Turnover Rate by:
Number of separations during a period
1. Separation Method =
Average number of workers during the period
+
20 80
LTR = × 100
2000
LTR = 5%
Number of separations + Number of replacements
2. Flux Method = × 100
Average number of workers during the period
+
100 50
LTR = × 100
2000
LTR = 7.5%
4.2 Idle Time

Usually, there is bound to be some difference between the time booked to different jobs or work
orders and gate time. The difference of this is known as idle time. Idle time is that time for which
the employer pays, but from which he obtains no production. Idle time is of two types:

1. Normal idle time, and
2. Abnormal idle time

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