Page 75 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
I N THE R EAL W ORLD CONTINUED
was to continually review the accuracy of labor routings. This resulted
in a timekeeping system cost of $169,478, which still represented
a reduction of $188,950 from the earlier timekeeping system, for a
drop in costs of 53 percent.

Summary
The timekeeping function is coming under increasing attack as cost
accountants realize that the costs of administering a detailed timekeeping
system are exceeding the value of the resulting information. This issue
can be resolved either by reducing the level of timekeeping effort until
the effort expended equals the utility of the resulting information
(which may result in the complete elimination of the timekeeping func-

tion) or by more fully automating the timekeeping and payroll functions
so that the cost of the system administration is reduced to the point at
which it is once again a cost-effective means of tracking labor activities.
Choosing which direction to take is based not only on the portion of
total corporate costs devoted to direct labor, but also on how crucial it is
to a company to wring out the highest possible profits from operations.
Thus,the nature of the timekeeping system is driven not only by the total

cost of direct labor, but also by the level of profitability of the business.

Endnotes
1. This chapter is derived with permission from Chapter 5 of
Steven Bragg, Cost Accounting (New York: John Wiley & Sons,
Inc., 2001).

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