ASCM-L02 — Costing of Labour
Understanding labour costs, methods of remuneration, labour records, and the importance of labour cost control in business organisations.
Learning Objectives
By the end of this lesson students should be able to:
• define labour cost
• distinguish direct and indirect labour
• understand methods of labour remuneration
• calculate labour costs
• explain labour records and labour control
• answer examination-style questions
CONCEPT OVERVIEW
What is Labour Cost?
Labour cost refers to the remuneration paid to employees for their services.
Labour is one of the major elements of production cost alongside materials and overheads.
Importance of Labour Costing
Labour costing helps businesses:
• determine product costs
• control labour expenditure
• improve efficiency
• measure productivity
• support pricing decisions
LABOUR RECORDS
Labour Records Used by Businesses
✓ Time Sheets
✓ Clock Cards
✓ Job Cards
✓ Payroll Records
✓ Attendance RegistersPurpose of Labour Records
Labour records help:
• calculate wages
• allocate labour costs
• monitor attendance
• improve labour control
• prevent fraud
ADVANTAGES & DISADVANTAGES OF REMUNERATION METHODS
| Method | Advantage | Disadvantage |
|---|---|---|
| Time Rate | Quality focus | Lower productivity incentive |
| Piece Rate | Encourages output | Quality may suffer |
| Bonus Scheme | Motivates employees | Can increase labour costs |
DIRECT AND INDIRECT LABOUR
| Type | Description | Example |
|---|---|---|
| Direct Materials | Form part of the finished product | Timber in furniture |
| Indirect Materials | Used in production but not identifiable with a specific product | Lubricants, cleaning materials |
Examples
Direct Labour:
✓ Machine operators
✓ Assembly workers
✓ Production staff
Indirect Labour:
✓ Supervisors
✓ Security staff
✓ Maintenance workers
METHODS OF REMUNERATION
Time Rate System
Employees are paid according to the time worked.
Example:
Hours Worked × Hourly Rate
Piece Rate System
Employees are paid according to output produced.
Example:
Units Produced × Rate Per Unit
Bonus System
Employees receive additional payments for achieving performance targets.
LABOUR COST CALCULATIONS
Time Rate Formula
Labour Cost
=
Hours Worked
×
Hourly Wage Rate
Piece Rate Formula
Labour Cost
=
Units Produced
×
Piece Rate
WORKED EXAMPLES
Example 1 — Time Rate
Hours Worked:
40Hourly Rate:
£12Labour Cost:
40 × £12
= £480
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
Example 2 — Piece Rate
Units Produced:
500
Rate Per Unit:
£0.80
Labour Cost:
500 × £0.80
= £400
Example 3 — Bonus Scheme
Basic Wage:
£500
Performance Bonus:
£100
Total Labour Cost:
£600
ACADEMIC SUPPORT NOTE
📌 Material costing is a core AS Cost & Management Accounting topic.
Students should master:
✓ Direct vs Indirect Materials
✓ Material Control Documents
✓ FIFO
✓ AVCO
✓ Material Losses
✓ Inventory Cost Calculations
🎥 Full worked examples are available in the YouTube Learning Library.
📩 Students may submit material costing doubts through the Student Doubt Support facility.
Structured Practice
Level 1 — Concept Check
Define:
a) Direct Labour
b) Indirect Labour
Level 2 — Application
Explain one advantage and one disadvantage of a piece-rate remuneration system.
Level 3 – Examination Style Question
An employee works 45 hours.
Hourly wage rate:
£16Calculate the labour cost.
(2 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Practise → Apply → Evaluate
1. Can you distinguish direct and indirect labour?
2. Can you calculate labour costs accurately?
3. Can you explain time rate and piece rate systems?
4. Can you identify labour records used by businesses?
5. Can you evaluate remuneration methods?
6. Can you apply labour costing concepts to examination questions?
If unsure, revisit:
• Direct vs Indirect Labour
• Labour Cost Formulae
• Labour Records
• Worked Examples
Detailed Activity Solutions
Solution to Level 3 question
Labour Cost
=
45 × £16
= £720
HOW THIS TOPIC APPEARS IN THE EXAMINATION
Common examination tasks include:
✓ Direct vs Indirect Labour
✓ Labour Cost Calculations
✓ Remuneration Methods
✓ Labour Records
✓ Labour Control Discussions
✓ Cost Classification Questions
Self-Assessment Checklist
□ I understand labour costing
□ I can distinguish direct and indirect labour
□ I can calculate labour costs accurately
□ I understand remuneration methods
□ I can explain labour records
□ I can answer examination questions confidently
Continue Your Preparation
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PREMIUM RESOURCES
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GUESS PAPERS
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VIDEO ON DEMAND
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