## Components of Wage Cost for Costing Purposes
### Monetary Components
| Component | Typical Treatment |
|---|---|
| Basic Wages + DA | Direct cost to jobs |
| Overtime Allowance | Overhead (unless job-specific) |
| Production/Incentive Bonus | Direct or overhead depending on traceability |
| ESI, PF Contributions | Overhead or absorbed via inflated rate |
| House Rent Allowance | Part of total wage cost |
| Holiday & Leave Pay | Overhead or absorbed via inflated rate |
### Non-Monetary Benefits
Include in total wage cost computation:
- Medical facilities
- Housing subsidies
- Canteen subsidies
- Education & training
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### Overtime Allowance
- Rates governed by the Factories Act
- Paid for hours worked beyond regular shifts
- General rule: Not attributable to any specific job → treat as factory overhead
- Exception: If overtime is at a specific customer's request → charge premium directly to that job
### Production Bonus
- Incentive for efficiency above standard production levels
- Minimum (Payment of Bonus Act): 8.33% of wages earned or ₹100 — whichever is greater
- Maximum: 20% of wages (based on profits calculated under the Act)
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### Holiday & Leave Wages — 3 Treatment Methods
Method 1: Treat as Departmental Overhead
- Maintain a separate payroll column for holiday/leave wages
- Segregated from "worked-for wages" and pooled into overheads
Method 2: Periodic Payroll Analysis
- Where a separate column is impractical, analyze payroll periodically
- Ascertain what portion of total payment is "worked-for wages" vs. leave/holiday wages
Method 3: Inflate the Wage Rate (Costing Rate)
- Build the holiday/leave component into the hourly rate used for costing
- Only applicable to direct workers (indirect workers' wages go entirely to overheads)
> Costing Rate Formula:
> $$\text{Costing Wage Rate} = \frac{\text{Total Wages (including holiday/leave pay)}}{\text{Effective Working Hours}}$$
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### Night Shift Allowance
- Extra payment for working at night
- Not attributable to any specific job → treated as overhead
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### Absorption of Employee Cost
For Indirect Workers (all methods agree):
- All monetary and non-monetary costs → treated as Overheads
- Absorbed using rate per direct employee hour
Ideal Method for Direct Workers:
- Charge ALL costs (monetary + non-monetary) directly to specific jobs/units
- Compute a single per-hour rate covering all benefits
Alternative Method for Direct Workers:
- Basic wages + DA → charged directly to jobs
- All other monetary benefits + all non-monetary benefits → treated as Overheads