Ch 10 - Human Resource Decisions

Question 1

Personnel Management (aka Human resources)

Answer 1

Personnel management (human resources) is a function concerned with

• job design
• recruitment, training, and motivation
• performance appraisal
• industrial relations, employee participation, and teamwork
• remuneration
• redundancy
• health and safety
• employment policies and practices

Question 2

Labour

Answer 2

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

Question 3

Financially reporting Human Resources

Answer 3

Human resources are truly an asset but the conservatism of accounting prevents human capital as being reported as such

Question 4

Cost of Labour

Answer 4

The salary or wage paid to the employee, plus any benefits.

The benefits consist of the non-salary or wage costs that follow from the payment of salaries or wages

Total employment cost may also include

• Bonuses
• Profit shares
• Non-cash remuneration
• Stock options
• Health benefits - dental and medical insurance
• Pension contributions, expense allowances, business-provided motor vehicles

Question 5

Total employment cost formula

Answer 5

Salaries and wages + benefits + non-salary benefits = Total employment cost

Question 6

Labour cost per hour formula

Answer 6

Total employment cost/actual hours worked = labour cost per hour

Question 7

Labour cost per Unit of Production

Answer 7

In companies that manufacture a product or provide a service, the labour cost to make each unit of product or to provide each service transaction is a direct cost that is important in determining the cost of production of the product or service

Question 8

Variability in Labour

Answer 8

Accountants have historically considered labour that is consumed in producing goods or services as a variable cost.

This concept of labour as a cost per service provided or per product produced is commonly used across many industries.

Since most companies cannot change their labour costs dramatically over the short term, many businesses today account for labour related to production of products or services as a fixed cost.

Question 9

Outsourcing Labour Costs

Answer 9

Whether current labour costs can be avoided if a company chooses to outsource will depend on a number of factors.

One factor that must be considered is the length of the decision to outsource. It is important in any calculation of relevant costs to be sure about which costs are avoidable and which costs are unavoidable.

Non-financial factors that must be considered when an organization is deciding to outsource a service

• Quality
• Privacy and security
• Ethical issues
• Importance

Question 10

Cost of Redundancy

Answer 10

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 are less tangible costs, not reflected in the financial reports of a business

• Loss of employee knowledge, skills, and experience
• Costs related to low morale on the part of other employees
• Decline in employee efficiency. This short-term concern with reducing labour cost often ignores the potential for cost improvement
• Activity-based costing
• Cost of quality improvements
• Improvements to capacity utilization

Question 11

Human capital metrics

Answer 11

• Employee satisfaction rating
• Retention rate
• Training cost factor
• Employee productivity
• Percentage of employees generating new ideas
• Average customer service response times
• Customer satisfaction ratings related to customer service
• Salary index ( = average wage/industry wage)