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Hi Mr. John
Can you please explain how to solve this question. My answer is 560, but its not even an option.
Q.) In a manufacturing company, skilled workers are paid $10 per hour.
In a particular week, the direct skilled workers have worked 20 hours overtime, 12 hours worked on specific orders whereas the other 8 hours worked on general duties.
Overtime is paid at a rate of time and a quarter.
What would be the total overtime pay which will be considered a direct cost?
The normal pay ($10 per hour) for direct workers is a direct cost for all the hours they work and so for the 20 overtime hours is 20 x $10 = $200.
As far as the overtime premium is concerned ($2.50 per hour) then it is only a direct cost if it is for hours worked on specific orders at the customers request (as explained in our free notes and lectures). So the direct cost is 12 x $2.50 = $30.
Therefore the total amount paid for overtime work that is regarded as a direct cost his 200 + 30 = $230.
(The overtime premium for the other 8 hours of overtime (8 x $2.50 = $20) is an indirect cost).
I don’t know how you managed to arrive at $560 because in total they worked 20 hours of overtime and the total paid for the overtime is 20 hours x $12.50 = $250. $230 of this is a direct cost and $20 is an indirect cost.