How Do I Calculate the Hourly Cost of Running Our Plant with Different Employee Pay Structures?

Dear Sir/Madam,

Please be so kind as to advise on how to calculate the cost of one hour of plant operation. We have two types of employees: one group receives a monthly salary based on 28/30/31 days, while the other group, consisting of Contract Labour, is paid a daily rate for 26 days.

I would also like to know if we should only consider personnel involved in the manufacturing process or if all departments, such as HR, Stores, Quality, etc., should be included in the calculation.

Thank you for your efforts.

Best regards,
Parimal

Dear Parimal, You may go through the books on "Cost Management." In these books, you will get definitions of direct labor, direct material, direct expenses, indirect labor, indirect material, and indirect expenses.

Nevertheless, knowledge of the definitions is one thing, and accuracy of calculations is another. Therefore, you may hire the services of a Cost Accountant. Costing is their area of activity.

You have asked about only the manpower cost working in departments like HR, Purchase, etc. But then what about the inventory of the raw material and finished goods? Can it be included in running costs? What about the cost of stock-out? Should we include these costs as well? Replies to these questions a cost accountant would know.

Thanks,

Dinesh Divekar

Mr. Divekar's point is very valid. You cannot consider only manpower direct cost; even in manpower cost, you also need to consider the canteen, transport, uniform, etc.

In addition to this, there are N number of costs involved, i.e., raw material, electricity, water, etc.

Based on the above components, the cost accountant can finalize the fixed and variable cost of a plant. Hence, it is better to seek the support of a cost accountant so that you can obtain accurate data and draw conclusions.

Dear All seniors,

Regarding the subject, my query is in regard to the number of days. Why do permanent employees receive their salary for 28/30/31 days, whereas temporary/casual employees are paid for only 26 days?

Additionally, could you please explain the difference between a worker and a workman?

Regards,
Bittu (Nagpur)
HR Professional.