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A business employs two grades of labour in its production department. Grade A workers are
considered direct labour employees, and are paid $10 per hour. Grade B workers are
considered indirect labour employees, and are paid $6 per hour.
In the week just ended, Grade A labour worked 30 hours of overtime, 10 hours on a specific
customer order at the customer’srequest, and the other 20 hours as general overtime. Grade
B labour worked 45 hours of overtime, as general overtime. Overtime is paid at time?and?
one?half.
What would be the total amount of pay for overtime worked in the week that is considered
to be a direct labour cost?
A $50
B $150
C $285
D $350The correct answer is D.
All costs of the Grade B workers are indirect costs.
For the Grade A workers, the basic pay for all of the overtime hours (whatever the reason) is a direct cost. There are 30 hours of overtime and so 30 x $10 = $300.
In addition, the overtime premium for overtime on a specific job at the customers request is also a direct cost. The premium of $5 per hour and there are 10 hours, so another $50.
So the total direct cost of overtime is $350.
(You can find the ‘rules’ in the ‘Accounting for Labour’ chapter of our free lecture notes and the free lectures working through the chapter).
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