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We have the following question from BPP course:
Company x employs two types of labour: skilled workers considered to be direct workers and semi-skilled workers considered to be indirect workers. Skilled workers are paid $10 per hour and semi-skilled $7.50 per hour. All employees work a standard 35 hour week. There are 7 skilled workers and 4 semi-skilled workers. The skilled workers have worked 50 hours of overtime this week, 20 hours on a specific order and 30 hours on general production. The semi-skilled workers have worked 20 hours of overtime, 10 hours on a specific order at a customer’s request and the remaining 10 hours to meet general production requirements. All overtime is paid at time and a half.
Requireda) What are the total direct labour costs for the week?
b) What are the total indirect labour cost for the week?a) Skilled workers:
Basic pay for normal hours worked
7x35x$10= 2450
Basic pay for general overtime
30x$10=300
Specific overtime
20x$10×1.5=300
Overtime premium for general overtime
30x$10×0.5
Why at the basic pay for general overtime the results is not multiplied by 7 (the no of workers) and by 1.5 (overtime amount?). Also, at the overtime premium for general overtime, from where the 0.5 it’s coming?Also, at the overtime premium for general overtime, from where the 0.5 it’s coming?
The 0.5 is overhead component of overtime. 100% or 1 is attributed to direct labor and the remaining to indirect labor or manufacturing overhead.
Now for the questions:
a) Total direct labor costs.
The direct labor costs can only be attributed to skilled workers. So, in calculating the total direct labor costs we calculate the regular pay and then the component of overtime that is attributed to direct labor.
Regular pay:
Hours per week = 35 hrs
Rate = $10/hr
No of workers = 7
Direct labor cost from regular pay per week = 35 hrs * $10/hr * 7 = $2450
Overtime pay:
Hours overtime = 50 hours {note: the question does not call for allocating overtime between specific orders or general processes. note!}
overtime rate = 150% of regular pay
Rate attributed to direct labor = 100% or 1
Therefore, overtime pay that is in direct labor costs = 1 * 50 hrs * $10/hr * 7 = $3500
Total direct labor cost = DL in regular pay + DL in overtime pay = $2450 + $3500 = $5950b) Total indirect labor costs is equivalent to manufacturing overhead from labor. note!
total indirect labor costs attributed to skilled workers from overtime pay plus the total compensation of semi-skilled workers because semi-skilled workers are indirect labor.
Indirect labor from skilled workers:
Overtime rate allocated to manufacturing overhead = 50% of regular pay = 1/2 * 50 hrs (of overtime) * $10 * 7 = $1750
indirect labor from semi-skilled workers:
Regular compensation, semi-skilled workers = 35 hrs * $7.5 * 4 workers = $1050
Overtime compensation = 150% of regular pay = 1.5 * 20 hrs * $7.5 * 4 = $900
Total compensation, semi-skilled workers = $1050 + $900 = $1950Total indirect labor costs = $1750 + $1950 = $3700
I am sure some of your earlier confusion are now clarified.Chadi Aliyu operates a group incentive scheme in his Wunti gate plant in Bauchi, standard output for the plant is 5,000 units per week. If production is less than or equal to standard output each worker receives a guaranteed hourly minímum. If production exceed standard output, the hourly rate of each worker is increases by 20% for every extra 150 units. Results for the first week of 2024 are as follows:
Name Guaranteed minimum hourly pay Units produced Hours worked
Azare N8 2,100 40
Gombe N7 1,900 40
Biu N6 1,705 40The standard working hours in a week is 40 hours.
Required
i. Calculate the Labour Cost per unit for the plant at Standard Output for the week (41/2 Marks)
ii. Compute the Gross Earning in the plant for the week (3 Marks)
iii. By Comparing the Actual Labour Cost per unit for the week with the Standard Labour Cost per unit in the plant, state whether or not the incentive scheme operated by Aliyu is effective.(2 Marks)b. B whose hourly rate of pay is N100.00 was assigned the following jobs which he completed during a week:
Job No. Time Allowed (Hours) Time Taken (Hours)
21 34 18
61 40 25(a) You are required to calculate under rowan premium scheme:
i. B’remuneration for the week
ii. B’s effective hourly rate for that weekWelcome to OpenTuition!
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