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Lecture 7

ADMS 1000 Lecture Notes - Lecture 7: Barcode, The Need, Deutsche Luft HansaPremium


Department
Administrative Studies
Course Code
ADMS 1000
Professor
Keith Lehrer
Lecture
7

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ADMS 1000 Lecture 7 Notes Measuring Direct Labour Cost, Computing predetermined
overhead rates, Using the Predetermined Overhead Rate and The Need for a Predetermined
Rate
Introduction
Direct labour cost is handled in much the same way as direct materials cost.
Direct labour consists of labour charges that are easily traced to a particular job.
Labour charges that cannot be easily traced directly to any job are treated as part of
manufacturing overhead.
As discussed, this latter category of labour costs is termed indirect labour and includes
tasks such as maintenance, supervision, and cleanup.
Today many companies rely on computerized systems (rather than paper and pencil) to
maintain employee time tickets.
A completed time ticket is an hour-by-hour summary of the employee’s activities
throughout the day.
One computerized approach to creating time tickets uses bar codes to capture data.
Each employee and each job has a unique bar code.
When beginning work on a job, the employee scans three bar codes using a handheld
device much like the bar code readers at grocery store checkout stands.
The first bar code indicates that a job is being started, the second is the unique bar code
on the employee’s identity badge, and the third is the unique bar code of the job itself.
This information is fed automatically via an electronic network to a computer that notes
the time and records all of the data.
When the task is completed, the employee scans a bar code indicating the task is
complete, the bar code on his or her identity badge, and the bar code attached to the
job.
This information is relayed to the computer, which again notes the time, and a time
ticket, such as the one shown in Exhibit 53, is automatically prepared.

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Because all of the source data are already in computer files, the labour costs can be
automatically posted to job cost sheets.
For example, Exhibit 53 shows $75 of direct labour cost related to Job 2B47.
This amount is automatically posted to the job cost sheet shown in Exhibit 52.
The time ticket in Exhibit 53 also shows $15 of indirect labour costs related to
performing maintenance.
This cost is treated as part of manufacturing overhead and does not get posted on a job
cost sheet.
Computers, coupled with technology such as bar codes, can eliminate much of the
drudgery involved in routine bookkeeping activities while at the same time increasing
timeliness and accuracy.
The design was straightforward59 black and white bars used to speed up the grocery
checkout line and give supermarkets a new tool to track their stock.
But the Universal Product Code has become much more than that since it was first used
to read the price on a pack of gum in 1974.
Today, bar codes are scanned more than 10 billion times a day around the world for
many different purposes, including tracking grocery sales and inventory, loading aircraft,
and tracking packages.
Although more expensive to implement, radio-frequency identification devices (RFIDs)
are beginning to replace bar code scanning systems.
The addition of RFID tags can be costly but can increase workflow efficiency.
For example, Kumho Tire, of South Korea, places RFID tags in all of the tires it produces.
Tags are implanted inside the inner liner of each tire, allowing Kumho to track
information about quality, performance, and time to manufacture.
Kumho expects to cut about $9.5 million in annual production, quality control, and
logistics costs using RFID technology.
Computing predetermined overhead rates
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