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After fabric, second major element of cost

Major factor upon which orders are
Direct & Indirect
Hourly labor costs can vary substantially under various
circumstances, within a country.
Generally, the differences are less in the very low wage
countries, And greater in absolute terms, in the more
industrialized countries.
Even in low wage countries like China and India, the hourly
labor cost paid can vary by as much as 100%, depending on
ownership, for example (privately owned versus government-
Costs often vary according to plant location within a country
In China, for example, the labor cost is substantially higher in the coastal
provinces and major cities, than in inland provinces and more remote areas.
Many developing countries are divided into industrial zones,
with each zone having a different government mandated
minimum wage.

In some countries, (Tunisia, Morocco, for
example), a company in operation for twenty
years will have a substantially higher average
labor costs than a company in operation for
only two years, due to the annual seniority
premium that must be legally paid.
In certain countries it can be quite difficult to
account for all of the fringes paid such as
housing, meals, transport, etc.
The percentage change in the labor force
of the organization
High percentage means
Unstable labor force
Frequent changes in make up of labour skills
Separation Method
No. of employees left during a period x 100
Average no. Of employees during a period
Replacement Method
No. of employees replaced during a period x 100
Average no. Of employees during a period
Flux Method
No. of additions + No. of separations during a period x 100
Average no. Of employees during a period
Personal causes
Retirement, disability, death, dislike of job place,
family responsibilities etc
Avoidable causes
Low wages, unsatisfactory working conditions,
bad environment, job dissatisfaction
Unavoidable causes
Retrenchment, disciplinary reasons
Preventive costs
Cost of
Providing good working conditions
Medical, housing and recreational facilities
Educational facilities to the children of workers
Subsidized meals
Other welfare facilities
Replacement costs
Cost of
Recruitment of new workers
Training new workers
Loss of production
Interruption in production
Inefficiency of new workers
Loss of profit due to loss of production
Worker is paid at hourly, daily, weekly or
monthly rate
Most suitable for
Highly skilled and unskilled workers
Emphasis on quality
Useful when
production is automatic
Output cannot be measured (like maintenance work)
Differential rate system
80% efficiency ----- Normal rate / hr
80 - 100% efficiency ----- Normal rate / hr
>100% efficiency ----- Normal rate / hr

Fixed rate for each unit produced / job
completed / operation performed
Payment is made according to quantity of
work done
Useful when output is measurable
Less managerial supervision needed
High production cost ensures lower
overheads / unit of output
Easy calculation of labor cost
Labor control becomes easier by way of
separating the inefficient ones
Emphasis on quantity rather than quality
Tendency to result in increased
imperfections & spoiled productions
High depreciation
No minimum wage
Too much control with management

Method of Rate Determination
Units of production per
time period
Time period per unit of
(1) (2)
(4) (3)
Straight piecework plan Bedaux plan
Halsey weir plan
Rowan plan
Gantt plan
Taylor differential piece
rate system
Merrick multiple piece
rate system
Pay constant function of
production level
Pay varies as function of
production level
production level
and pay
Straight piecework plan
Output X rate per piece
Taylor differential piece rate system
Two different rates
Lower rate for low efficiency workers
Higher rate for high efficiency workers
Encourages high efficiency workers
Simple to understand
Companies often set high standard to reduce incentives

Merrick multiple piece rate system
3 different rates
Normal piece rate for 83% of standard output
110% piece rate for 83 -100% of standard output
120% piece rate for >100% of standard output
Bedaux plan
Guaranteed hourly rate till standard production is
Additional wage is given for excess units produced

Operation :Collar attach
Standard production target : 50 Pc / Hr
Guaranteed Hourly wage is 15 Rs / Hr
Operator produces 75 pcs
Guaranteed wage = Rs 15
Each collar is given a point = 60 mins / std production
target = 1.2
Excess points produced = 25*1.2 = 30
Each point is equal to 15 / (50*1.2) =0.25 Rs
Excess Rs generated = 30 points x 0.25 =7.5 Rs
Pay 75% of Rs 7.5 as incentive

Halsey weir plan
Payment = Guaranteed hourly wage + (33% of time saved
x hourly wage)
Rowan plan
Payment = Guaranteed hourly wage + Bonus

Advantage :
Guaranteed minimum wages
Unions tend to ask for higher time rate in turn
higher minimum wage / incentive