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CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

Mehta Textiles employs 400 workers on average during the year. During the year 28 workers left and 12 were replaced; in addition 20 new workers were recruited because of an expansion. Two workers were discharged. Using the replacement method, what is the labour turnover rate?

Under the replacement method, labour turnover is workers replaced divided by average workers. Here 12 replacements over 400 average workers gives 3%. The 20 recruits for expansion are not replacements, so they are excluded, and separations are not used in this method.

  1. A3%Correct
  2. B3.5%
  3. C7%
  4. D12%

Explanation

Replacement method counts only the workers replaced: 12 replaced / 400 average workers x 100 = 3%. Using separations (28 + 2 = 30) gives 7.5%, and including the 20 expansion recruits wrongly gives 8%. Option 7% and 12% are not derived correctly.

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