Class 12 Accounting-II Notes | ACCOUNTING FOR LABOUR | Principles of Accounting-II XII

Class 12 Accounting-II Notes,ACCOUNTING FOR LABOUR,Principles of Accounting-II XII

ACCOUNTING FOR LABOUR

60) Difference between Time Rate and Piece Rate Wage system

Based of differences	Time rate	Piece rate
1. Basis of wages	Wages is calculated on the basis of time     Wages is calculated on the basis of spent by the worker on the jobs.	Wages is calculate on the basis of output or production.
2. Idle time	There is a possible of excessive idle time in this system.	There is a less chance of idle time in this system.
3. Quality of work	The quality of work is good as there is no pressure to produce more goods.	The quality of work may not be good because of pressure to produce more goods.
4. incentive	There is a lack of incentive for the efficient and honest worker.	It encourages motivated workers to produce more and earn more
5. control and supervision	Control and supervision are needed as the workers may not work properly.	It encourages motivated workers to produce more and earn more
6. Suitability	If the quality is more concerned than quantity, this method is suitable.	If the quantity is more concerned than quality, this method is appropriate.
7. Equality	All the workers get equal wages under this method irrespective of the output.	The works with high output get higher wages and vice versa.

61) Advantages and Disadvantages of Piece Rate Wage System

Advantages

• Simplicity
• No payment for Idle time
• Easy to calculate amount of wage
• More suitable to the beginners.

Disadvantages

• Less attention to quality
• No guarantee of minimum wages
• Adverse effect on worker's health

62) Advantages and Disadvantages of Time Rate Wage System

Advantages

• Ensures Quality
• Unity among workers
• Avoids over speeding and damages of equipment

Disadvantages

• No incentive to the efficient workers
• Dissatisfaction among the efficient workers
• Go-slow policy
• Payment for idle time

ACCOUNTING FOR OVERHEAD

63) What do you mean by overheads?

In simple words, all the expenses except direct material, direct labour and other direct expenses are called overhead. The overheads are the aggregate of all indirect costs such as indirect materials, indirect wages and other indirect expenses.

64) Classification of overheads

According to its function

Overheads can be classified according to various basis. According to functions, overheads can be classified as:

• Production overhead (factory rent, insurance, depreciation on machinery, etc.)
• Office and Administrative overhead (office rent, tax, staff's salary, depreciation of office assets, etc.)
• Selling and Distribution overhead (advertisement, salesman commission, showroom expenses, etc.)

According to control

Controllable overhead (idle time wages, consumable materials, etc.)

Uncontrollable overhead (depreciation of assets and other fixed costs)

According to Behavior  

• Fixed overhead: Fixed Overheads are the costs that remain unchanged with the change in the level of output. That is, such expenses are incurred even if there is no output produced during the specific period. (Rent of building, interest on loan, etc.)
• Variable overhead: Variable Overheads are the costs that change with a change in the level of output. That is, such expenses increase with increasing production and decrease with decreasing production. (Indirect material, indirect labour, etc.)
• Semi-variable overhead: As the name suggests, the semi-variable costs are the expenses that are partially fixed and partially variable. That is, these expenses remain fixed only up to a certain level of output. In other words, such expenses would increase if the output goes beyond such a level. (Electricity charges, landline bill, etc.)

65) Difference between Allocation and Apportionment of overhead with suitable examples.

Basis for difference	Overheads allocation	Apportionment
Introduction	Allotment of total overheads to the certain cost center	Distributing the overhead cost to the different cost centers.
Represents	Entire overhead costs	Part of overhead costs
Assigned	On direct basis	On proportional basis
Applicable	When total overhead cost is related to a single unit	When total overhead cost belongs to different units.
Examples	Salary of sales manager	Salary of General Manager