Page 73 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
I N THE R EAL W ORLD CONTINUED

Cost to correct data errors. On average, the accounting staff
spent three hours per day correcting errors that had been dis-
covered on time sheets or created during data entry. These errors
were investigated and corrected by a senior data entry clerk,
whose hourly burdened pay was $15.28. This resulted in a
monthly cost of $963 (3 hours x 21 days x $15.28).
The grand total of all these costs was $29,869 per month, or
$358,428 per year.
Ms. North’s next task, determining the value of the benefits derived
from the timekeeping system, was much more difficult. She found
that the number of daily hours worked was used by the payroll staff
to calculate and pay weekly wages to the direct labor employees. She
described this function as a mandatory one for which the system
had to provide sufficient data to calculate the payroll, but she could
not ascribe to it a monetary value.
Next she looked at the benefit of tracking hours by job worked. This
information was used by the cost accounting staff to develop an
income statement for each job, which the sales staff used to revise
its pricing estimates for future jobs, to verify that pricing levels were
sufficiently high to ensure a targeted profitability level per job of 30
percent. The proportion of direct labor to all job costs was about
one-third, so this was considered a significant cost that must be
tracked for this purpose. The pricing staff members assured the
cost accountant that they frequently altered their pricing strategies
in accordance with the information they received through the job
income statements. Once again, Ms. North found herself unable to
clearly quantify a benefit associated with the tracking of direct labor
hours, this time in relation to job numbers, but it appeared that
obtaining the information was mandatory.

Ms. North’s last benefits-related task was to quantify the benefit of
tracking labor hours by workstation within each job. She found that
this information was only used by the industrial engineering staff,

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