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Hi joh sir…
Basic hours/week are 40.
Overtime hours/week are 6.
Basic rate/hour is $4.Overtime hours worked were due to following reasons:
Due to late delivery of material 4 hours and on customer request 2 hours.
Overtime is paid for time and half.
What is the total direct labour cost..
Is the answer is as follow?
46*4= 184
1*4= 4So direct labour cost 188..
Plz confirm..
Your answer is correct (although surely you have an answer anyway in the same book in which you found the question – if not then you really should be using a Revision Kit from one of the ACCA approved publishers?).
Thanx a lot for ur reply sir..but why we r not deducting 4 hours from 40 hours..as these 4 hours were worked in overtime due to late delivery..it means due to late delivery worker would be idle for 4 hours..payment of idle time should indirect cost here..plz explain i’m confused on this point actually..
Ooops – you are quite correct (I was concentrating on the overtime and not thinking properly 🙂 )
The four hours of idle time are an indirect cost, and so only the other 42 hours (46 – 4) at basic pay (together with the premium for overtime at the customers request) are direct costs.
But if the firt post is changed as(overtime of 4 hours was general overtime) The remaing question would remain same…then john sir what would be the answer?
If the 4 hours were general overtime then the hours worked would be a direct cost but the overtime premium for them would be an indirect cost.
Sir..one more question..
An indirect worker worked an overtime of 30 hours out of which 20 hours were worked as specific overtime and remaing were to meet general production requirements. Baic rate per hour is $5.premium is paid @50% of basic rate.
claculate direct and indirect labour cost.
My workings are:Direct costs:
Premium = 20*2.5=50Indirect costs:
Basic pay of ind.workers= 30*5=150
Premium. =10*2.5=25My workings are correct?
Because he is an indirect worker, then all his pay is an indirect cost.
Why are you attempting questions for which you do not have answers?
Oki thanx sir..got it..sry for late reply. Internet problems in my city.
Dear sir:It means all payment made to a indirect worker would be treated as indirect cost.but why all payment made to a direct worker is not treated as direct cost? Why we treat premium (Direct/indirect) on the base of type of overtime. Why this criteria of premium is not applicable for indirect worker?..
The direct cost is the cost directly to produce whatever they are producing. Overtime may be an extra cost, but it should not be. That is why it is usually regarded as being in indirect cost.
Hi sir…thanks a lot..sorry for late reply as internet access issues here.
Sir it means all paymemt made to an indirect worker would be treated as indirect cost..but in case of direct worker why it is not so that all payment made to direct worker would be direct cost…premium is treated as direct cost if specific overtime but if general overtime then indirect..bt this criteris is only applied in case of direct worker..why.?
Thanks in advance sir
Sir.. i could’t get it…?
My question is…if all payement to indirect worker is considered as indirect cost then why all payment to direct worker is not considered as direct cost? For example if premium is being paid to direct worker due to specific overtime then it is direct but premium is paid to direct worker due to general overtime then its is indirect…but in case of indirect worker everything is indirect..why is there discrimination?
Discrimination???!
Payment to indirect labour is a indirect cost. They are not involved in directly producing anything.
But just because indirect labour is an indirect cost, does not therefore mean that any payment to direct labour is a direct cost – why should it?
If the company had more staff, then they wouldn’t need to pay any overtime premium, and all of their wages would be a direct cost – and you would be happy with that.
Just because at the moment they do not have enough people and therefore have to pay a premium for overtime does not mean the direct cost of producing is suddenly higher. Next week they might have enough staff and there would be no premium to pay. It obviously is an extra cost but is an indirect cost.
The exception of course is when the overtime is for a special job – then the premium is a direct cost of that job doing that job because it would not have been needed otherwise.
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