# Labour Cost: Classification and Departmental Control
## Definition
Labour Cost = Cost of wages and other benefits paid by an employer to workers based on time worked or output produced (physical or mental effort).
$$\text{Labour Cost} = \text{Direct Labour Cost} + \text{Indirect Labour Cost}$$
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## Classification of Labour Cost
| Feature | Direct Labour Cost | Indirect Labour Cost |
|---|---|---|
| Attributability | Can be directly attributed to a product, process, or job | Cannot be directly attributed |
| Cost classification | Part of Prime Cost | Part of Overheads |
| Variation | Varies positively with production volume | May not vary with volume |
| Example | Workers on a construction site | Workers in purchase dept., stores, time-keeping |
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## Five Departments Involved in Labour Cost Control
> Remember: Controlling labour cost means keeping wages per unit of output as low as possible — NOT reducing wages.
| Department | Primary Role |
|---|---|
| Personnel Dept. (Hire & Fire) | Recruitment, training, maintaining employee records, performance evaluation |
| Engineering & Work Study Dept. (Job Analysis) | Prepares job plans/specs, conducts time & motion studies, job analysis and evaluation, supervises production |
| Time-Keeping Dept. (Attendance) | Maintains attendance records and time spent by workers on various jobs |
| Payroll Dept. (Wages Disbursement) | Prepares payroll and disburses wages/salaries |
| Cost Accounting Dept. (Allocation) | Accumulates, classifies, and allocates labour costs to jobs, processes, and departments |
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## Ten Key Factors in Labour Cost Control
1. Assessment of manpower requirements
2. Control over time-keeping and time-booking
3. Time & Motion Study
4. Control over idle time and overtime
5. Control over labour turnover
6. Wage systems (time-based / piece-based)
7. Incentive systems
8. Control over casual, contract, and outdoor workers
9. Job Evaluation and Merit Rating
10. Labour productivity