Labor cost analysis in Al-Zamil Air

Project principle investigators: Hmood Al-Duaij, Ali Al-Suwaiyed, Hosam Alam

Supervisor: Dr Muhammad Al-Salamah

Course: ISE-304 Principles of Industrial Costing

Institution: King Fahd University of Petroleum and Minerals

Table of contents

When we visit Al-Zamil Company our group decides to do manufacturing labor cost analysis to a specific assembly production line. This labor cost analysis is done for one stage of a specific assembly production line. There is no specific problem to solve but we will do an improvement for this assembly production line. This assembly production line produces a control box that used in an air conditioning to control which is put inside the air conditioning. Each worker in this assembly line is given a wage at the end of each month. We decided to do analysis to that assembly production line to improve from different aspects. First, to find the labor cost per hour for each employee. Second, to find the standard time for this stage and from this we can find out the total number of units that can be produced per hour. Third, to find the total direct labor cost and finds a way to reduce this cost. Fourth, try to offer to the worker an incentive plan in which is paid in proportion of the number of units produced. This plan may be used to motivate the worker to do his work in a better and faster way.

Data collection

Our team visit Al-Zamil Company in First Industrial City, we meet with Mr. Mohammed Al-Enezi, Production Engineer and we collected the following data:

S.N	ACTIVITY	OBSERVED TIME(min)
1	Pick up control box	0.22
2	Fix 2 capacitors with clamp (1 relay, 1conductor, 2terminal blocks,1 lug and 2 small capacitors on control compartment). keep inside	3.23
3	Material arranging	0.4
4	Pick up control box & paste 9 stickers.	1.65
5	Fix 6 wires & assemble control box & keep inside.	3.9
6	Material arranging.	0.35
7	Fix 6 wires & assemble control box & keep inside	3.05
8	Material arranging.	0.25
9	Pick up control box & harness & assemble	3.4
10	Material arranging	0.3

The company operates shifts of 9.5 hours and the production runs five days in a week. production workers are paid a salary of 2800 riyals per month.

Methodology

The labor is broken into direct and indirect. In our analysis we will just concentrate about the direct labor cost analysis. The direct labor is defined as directly involved with the changes to the material during manufacturing. By its nature, the direct labor cost is influenced by and increase with the operation time of a job, generally by this formula: Direct labor cost = job time * wage. Hence, job time estimation is necessary for direct labor cost estimation. We will base our estimation of the direct labor cost on the wage paid directly to the worker. The labor cost is computed as : Cdl = Ha*Rh where Ha is the actual time and Rh is the rate in riyals per hour. For the standard time analysis our group decided to do time study to find out the standard time per units produced. The standard time for an operation per unit is given by multiplying the operation normal time by the allowance factor: Ts= Tn *Fa. From this formula we can find out the number of units that can be produced in one hour.

Data analysis

To establish the standard time for the control box assembly operation, the observed time is adjusted for rating and allowances.

S.N	ACTIVITY	OBSERVED TIME (min)	RATE	NORMAL TIME (min)
1	Pick up control box	0.22	100	0.22
2	Fix 2 capacitors with clamp (1 relay, 1conductor, 2terminal blocks,1 lug and 2 small capacitors on control compartment). keep inside	3.23	100	3.23
3	Material arranging	0.4	100	0.4
4	Pick up control box & paste 9 stickers.	1.65	105	1.73
5	Fix 6 wires & assemble control box & keep inside.	3.9	105	4.1
6	Material arranging.	0.35	105	0.37
7	Fix 6 wires & assemble control box & keep inside	3.05	95	2.9
8	Material arranging.	0.25	95	0.24
9	Pick up control box & harness & assemble	3.4	100	3.4
10	Material arranging	0.3	100	0.3

Allowance will be taken as 15%.

The normal time for this operation is = 0.22+3.23+0.40+1.73+4.10+0.37+2.90+0.24+3.40+0.30 = 16.89 minutes

Allowance factor = 100/(100-15) = 1.18

The standard time for the operation is = 1.18 * 16.89 = 19.93 minutes per unit

The direct labor wage is 2800 / (9.5* 5*4) = 14.74 riyals per hour

For an order of 28 units, the direct labor cost associated with this order on this operation is 28*19.93*14.74 = 8225.51 riyals

Conclusion

This project is about the labor cost analysis and how an acceptable labor cost analysis is performed in real manufacturing field. We did a labor analysis for specific assembly line production. We concentrate further and did labor analysis on one stage. The labor cost is based on the wage that is given for each employee. We focus on this stage from three different aspects. First, we find the labor cost per hour for each employee to find out the total direct labor cost for this specific stage. Second, we apply the time study method to measure the standard time to complete the operations in this stage. From this standard time we calculate the number of units that can be produced per hour. At the end we recommend to companied operation to be done by 4 employees to 2 employees , this will reduce the total normal time to the operation will be done, from this we can find a new total standard time that will reduce the direct labor cost.

تقدير كلفة العمالة في مصنع الزامل للمكيفات
الباحثين الاساسيين: محمود الدعيج، على السويد، حسام عالم
المشرف: الدكتور محمد السلامة
المادة: مبادئ حساب التكاليف الصناعية
المؤسسة التعليمية: جامعة الملك فهد للبترول والمعادن