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ch12-1.pptxChapter 12
Human Resources Decisions
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© 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 978XXXXXXXXXX, Chapter X
Overview
Human resources and accounting
The cost of labour
Relevant cost of labour
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Human resources and accounting
It is through human resources that the production of goods and services takes place
Human resource management is concerned with the management of people in a way that improves organizational performance and effectiveness
Armstrong & Taylor (2014)
Job design, recruitment, training, motivation, performance appraisal, industrial relations, employee participation, team work, redundancy, health & safety, employee policies & practices, culture.
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Human resources & accounting
In accounting terms, people are treated as labour: a resource that is consumed – therefore an expense rather than an asset - either directly in producing goods or services, or indirectly as a business overhead
Businesses value human resources but do not value them for accounting purposes
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Cost of labour
Cost per unit of production
Salary + oncost = total employment cost
Divided by productive time = labour cost per hour
Divided by production = labour cost per unit of production
A longer term view may include recruitment and training costs, etc.
Labour is traditionally a variable cost but in the short term may be a fixed cost
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Cost of labour
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Illustration: cost of labour
Total employment cost per
working day = £76,000/227
= £334.80 per day
If employee works 8 hours and is 80% productive the cost per hour worked is £52.31
(£334.80/(8x80%))
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Relevant cost of labour
Full capacity: the relevant cost could be the additional labour costs (e.g. casual labour or overtime) which may have to be incurred, or the opportunity cost following from the inability to sell product/ services or the cost of diverting labour from alternative work
Spare capacity: if there is surplus labour which will be paid whether a particular decision is taken or not, the labour cost is irrelevant to the decision
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Relevant cost of labour
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Illustration: Outsourcing
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Redundancy and its alternatives
One of the first business responses to a downturn in profits is to make staff redundant.
Although the redundancy payments will be recognised as a business cost, there is a substantial social cost, not reflected in the financial reports of a business.
These social costs will be borne by the redundant employee, while the financial burden of unemployment benefits may be borne by the taxpayer.
This short-term concern with reducing labour cost often ignores the long term investment in skills and the potential for cost improvement that can arise from a better understanding of business processes
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
Key points
Labour costs and their accounting treatment
Cost of labour
Cost per hour, cost per unit of production
Relevant costs
Full or spare capacity
Labour as a long term investment; costs borne by the organization or society
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©2015 John Wiley & Sons Ltd, Accounting for Managers, 5th edition, 9781119002949
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Working days 52 x 5 260
Less:
Annual leave 20
Sick leave 5
Public Holidays 8 33
Actual days at work 227
Salary 50,000
Oncosts:
National insurance 12% 6,000
Pension contribution 6% 3,000 9,000
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Bonus paid as share options 5,000
Total salary cost 64,000
Non-salary benefits:
Cost of motor vehicle 10,000
Expense allowance 2,000 12,000
Total employment cost 76,000
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The fixed/variable cost approach would have identified the cost of labour as
