Definition of Labor Costs

This time we will provide a discussion about Accounting for Costs Related to Labor, happy reading …

Table of contents :

  • Definition of Labor Costs
  • Classification of labor
  • Classification According to Main Function
  • Classification According to Departmental Activities
  • Classification according to the type of work.
  • Labor Cost Element
    • Salary or Regular Wage
    • The first stage
    • The second stage
    • The third stage
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Definition of Labor Costs

Is a cost that will be incurred to pay employees and employees who work at a particular company.

The cost of labor is to be able to make payments which are called “wages”. It is very important to distinguish between the term “salary”.

Salary is a payment to workers or employees based on a span of time, such as weekly, monthly or other salaries.

This wage is also charged through a direct labor cost account, while this salary is also charged through a factory overhead cost account.

Classification of labor

1. Classification According to Main Function

In industrial companies there are 3 main functions, namely; production, marketing as well as administration.

So, this labor cost can also be classified into production labor costs, marketing labor costs, or administrative labor costs.

2. Classification According to Departmental Activities

This labor cost can be classified according to the departments in a company.

for example; in the production department of a company which consists of the pulp department, the paper department and also the refinement department.

Labor costs in this production department can be classified according to the parts that have been formed in the company.

This kind of classification is often done with the aim of making it easier to control labor costs that will occur in every department that is often formed in the company.

 

Also Read:   Understanding Sales Reports

 

3. Classification according to the type of work.

The classification of labor costs can also be done according to the nature of the job. For example, this labor will be classified into: operator, foreman, supervisor.

Then the labor costs can be classified into; foreman’s fee, operator’s fee, supervisor’s fee This classification of labor costs is intended to be used as a basis for determining work standard wage differentiation.

Labor Cost Element

Salary or Regular Wage

The regular salary or wages that workers usually receive can be calculated based on working hours or production units multiplied by a predetermined wage rate. Generally, working hours can be determined in working hours / machines or working days.

Accounting for salary and wages costs can be done in 4 stages of recording as follows:

a. The first stage

Based on employee attendance cards (both production, marketing and administration and general employees), the section making a list of salaries or wages then makes a list of employees’ salaries and wages.

From the list of salaries and wages, a recapitulation of salaries and wages will be made to be able to classify

Salaries or wages are: salaries and wages of factory employees, salaries and wages of administrative and general employees, and marketing employees’ wages.

Salaries and wages of factory employees will be further broken down into the wages of direct employees as well as indirect employees

in relation to the product. On the basis of the recapitulation of salaries and wages, the journal is as follows:

  • Work in Process – Labor Costs Xx
  • Factory Overhead Cost xx
  • Administrative or General Costs xx
  • Marketing Costs xx
  • Salary and Wages xx

b. The second stage

On the basis of the salary and wages list, the Finance Department makes a cash out receipt or check to be able to withdraw money from the bank. On the basis of the cash outflow, the journal is:

  • Salary and Wages xx
  • Employee Income Tax Payable xx
  • Salaries and Wages Payable xx

c. The third stage

After this check is cashed in the bank, the salary and wages will then be put into the salary and wage envelope for each employee.

Salaries and employee wages are then paid by a paymaster to each entitled employee.

Each employee is required to sign a list of salaries and wages as proof that their salary and wages have been received after each employee will take his salary and wages, on the basis of a list of salaries and wages that have been signed by the employee, the journal is:

  • Salaries and Wages Payable xx
  • Cash xx

 

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