(2) This method fails to take into account the expenses which are not incurred according to labour hours, such as power, depreciation, fuel, insurance, etc. (1) This method cannot be used when machines are extensively used for production. (3) The rate is not affected by wage rates, different kinds of incentive systems, etc. (2) It is a scientific method since time factor is duly considered. (1) This method is simple and easy to calculate since labour hours are readily available from time sheets, job cards, etc. (2) It is suitable even when the production is not uniform. (1) This method is suitable when production is carried on manually. Direct Labour Hour Method:ĭirect labour hour rate is computed by dividing the factory overhead by direct labour hours. (3) It combines the shortcomings of both direct material and direct labour percentage methods. (2) No consideration is given for fixed and variable cost. (1) When material forms major part of total cost, time factor is ignored. (3) This method is suitable when a standard article is produced requiring constant quantity of raw material and number of hours spent upon its production. (2) The rationale behind this method is that both material and labour costs cause the overhead to be incurred and therefore it is appropriate to use the aggregate of both as basis for absorption. (1) This method is simple to calculate and apply. Under this method the overhead is divided by the aggregate of direct material and direct labour cost of the department. (5) When labour is not the major cost of production this method of absorption will not be suitable. (4) No distinction is made between the production of hand workers and that of machine workers. (3) Distinction between fixed and variable expenses is ignored. Using the centre of gravity as starting point, managers can now search in its vicinity for the optimal location.(2) Differences in output of skilled and unskilled workers and difference in rates of pay may make the method inaccurate. To calculate the centre of gravity, start with the following information, where population is given in thousands. Find the target area’s centre of gravity for the Health-care medical facility. Details of seven census tract centers, coordinate distances along with the population for each centre are given below. Two locations being considered for the new facility are at (5.5, 4.5) and (7, 2), which are the centers of census tracts C and F. Customers will travel from the seven census tract centre s to the new facility when they need health- care. The table given below shows the coordinates for the centre of each census tract, along with the projected populations, measured in thousands. The new Health-care facility is targeted to serve seven census tracts in Delhi. Where C x = x-coordinate of the centre of gravityĬ y = y-coordinate of the centre of gravity The centre of gravity is determined by the formula.Ĭ X = ∑D ix.W i/∑W i and C Y = ∑D iy.W i/∑W i This can be easily done by placing a grid over an ordinary map. The origin of the coordinate system and scale used are arbitrary, just as long as the relative distances are correctly represented. The first step in this procedure is to place the locations on a coordinate system. The centre of gravity is defined to be the location that minimizes the weighted distance between the warehouse and its supply and distribution points, where the distance is weighted by the number of tones supplied or consumed. The centre of gravity method takes into account the locations of plants and markets, the volume of goods moved, and transportation costs in arriving at the best location for a single intermediate warehouse. This method can be used to assist managers in balancing cost and service objectives. Centre of gravity is based primarily on cost considerations.
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