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A manufacturing company has 20 employees, each paid a basic rate of $5 an hour. A standard working week is 35 hours; overtime is paid at time and a quarter. Last week all employees worked 37 hours, producing 3,000 units.
What is the total unit labour cost?
Option B has been given as the right answer.
However I’m unable to understand why are we even including Overtime Premium of $50 while calculating the cost per unit.
Because Overtime Premium is treated as an Indirect Labour Cost (i.e. that Labour Cost which cannot be traced to a cost object in an economical feasible manner).
Thus we should only take the Direct Labour Cost of $ 3700, therefore (3700/3000) = $1.23/per unit
Is that the answer that is given in the book that you are using? 🙂