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Hello Sir, I am very confused, could you clarify this for me?
In this question:
A direct labor employee works a standard 37-hour week and is paid a basic rate of $15 per hour. Overtime is paid at time and a half. In a week when 40 hours were worked and a bonus of $20 was paid, what was the direct labor cost?
Answer: 40 × $15 = $600.
My question is:
If the question asked us for indirect labor cost, how would we calculate it? Would it be (40 – 37) × $15 x 1.5, or is there another approach? Please correct me if I am wrong. I know it seems simple, but I am confused especially in this part “Overtime is paid at time and a half.”
The extra cost of the overtime is an indirect cost.
There are 3 hours of overtime and ‘time and a half’ means that the premium over the basic rate is 0.5 x the basic rate and so is 0.5 x $15 = $7.50 per hour. So the total overtime premium (which is an indirect cost) is 3 x $7.50.
Have you watched my free lectures on accounting for labour? 🙂
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