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Does total direct labour charge include overtime too? Because the answer in my revision kit says so.
Shouldn’t it be considered a direct charge when the work is done under the special request of a customer?The basic pay is always a direct cost including the hours that are overtime work.
Any overtime premium (the amount paid above the basic pay rate) is a direct cost when work is done at the special request of the customer. Otherwise it is an indirect cost. (But the basic pay rate is a direct cost whether or not it is overtime work).
If you are still unsure, then if the question you refer to is in the BPP Revision Kit then tell me which one and I will explain.
It’s in the revision kit of Kaplan.
Normal working week – 36hrs
Basic rate of pay (direct) – $6.2 per hour
Overtime pay – $ 7.5 per hourLast week, the total hours worked by all these workers are 936. The overtime hours worked was 108. All employees worked at least their basic 36 hours.
What was the Total Direct labor charge?( The actual answer is $5803.2 although I think the answer should be $5133.6 )
Read the first line of my previous reply again.
They worked in total 936 hours.
The basic pay is $6.20 per hour, and therefore the direct labour cost is 936 x $6.20 = $5,803.20.
(The overtime premium is $1.30 per hour. Since they worked 108 hours of overtime, the total overtime premium is 108 x $1.30 = $140.40, but this is an indirect cost.)
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