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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for Labour
Hello Sir.
Q. Employee A is a carpenter and normally works 36 hours per week. The standard rate of pay is $ 3.60 per hour. A premium of 50% of the basic hourly rate is paid for all overtime hours worked. During the last week of October, Employee A worked for 42 hours. The overtime hours worked were for the following reasons:
Machine breakdowns: 4 Hours
To complete a special job at the request of a customer: 2 hours
How much of employee A’s earnings for the last week of October would have been treated as direct wages?
The answer should be $140.40
I’ve troubles in the calculation of overtime.
The total hours worked were 42.
4 of those were for idle time (machine breakdown) and the cost of these hours is an indirect cost.
The basic pay for the other 38 hours is a direct cost and is 38 x $3.60 = $136.80.
In addition, 2 of the 38 hours were overtime at the specific request of the customer. For these 2 hours they were paid not only the basic pay (which is included in the 136.80) but an extra 50% – the overtime premium. So the extra pay for these 2 hours is 2 x 50% x $3.60 = $3.60.
This is treated as a direct cost because it was at the customers request.
So the total direct cost = 136.80 + 3.60 = $140.40
Thank You, Sir 🙂
I’ve understood it better now.
You are welcome 🙂
Good day sir, In Regards to the calculation. I have a hard time understanding why the 2 hours overtime was included in the basic calculation when the rate was 50% of the basic which is $1.80. My question is why was the 2 hrs included in the basic calculation and not treated separate from the beginning ? ie 36hr *3.60 + 2hr*1.80
The overtime hours are not paid at 1.80 per hour. They are paid at a premium of 1.80 and so are paid at 3.60 + 1.80 = 5.40 per hour.
So it is 36 hours at 3.60 plus 2 hours at 5.40, which gives 140.40 as I wrote before.