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Q) 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’s request, 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. $350This question is from Kaplan and I know that Grade B labourers overtime will not be considered to be a direct cost since they are indirect labour employees AND I believe that only the 10 hours of specific overtime by Grade A labour employees will be considered as direct cost, right? Hence, the answer should be A because 10hrs x $10 x .50 But the answers at the back of the book say D and the method they have shown INCLUDES the 30 hours of general overtime.
Please help. =)
Everything you have written is correct, except for the fact that since Grade A workers are paid at time-and-one-half for overtime, then the amount they will be paid for overtime hours is 1.5 x $10 = $15.
So the total overtime paid that is a direct cost is 10 hours x $15 = $150.
(The basic pay of $10 during the overtime hours is always a direct cost, the premium of $5 per hour is also a direct cost because it is at the customers request)
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