Accounting for Managers: Interpreting Accounting Information for Decision Making, 4th Edition

Chapter 12

Human Resource Decisions

Building on accounting for operations, this chapter explains the components of labour costs and how those costs are applied to decisions affecting the production of goods or services. The relevant cost of labour for decision-making purposes is also explained.

Human resources and accounting

According to Armstrong (1995a, p. 28), ‘personnel management is essentially about the management of people in a way that improves organizational effectiveness.’ Personnel management – or human resources (HR) as it is more commonly called – is a function concerned with job design; recruitment, training and motivation; performance appraisal; industrial relations, employee participation and team work; remuneration; redundancy; health and safety; and employment policies and practices. It is through human resources, that is people, that the marketing and production of goods and services takes place. Historically, as Chapter 1 suggested, employment costs were a large element of the cost of manufacture. However, with improvements in manufacturing, information and communications technologies and the shift to service and knowledge-based industries in most Western economies, people costs have tended to decline in proportion to total costs.

Armstrong (1995b) argued that the tighter grip of accountants on business management and the diffusion of management accounting techniques were forces with which human resource managers had to contend. This was particularly the case ...