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Sir, may you help me on below Kaplan exam kit question?
since the extra 3 hours is general overtime and considered as indirect labour cost, why calculate as “40 × $15” and not as “37 X $15” ?
A direct labour employee works a standard 37 hour week and is paid a basic rate of $15 per
hour. Overtime is paid at time and a half. In a week when 40 hours were worked and a
bonus of $20 was paid, what was the direct labour cost?
answer given is $600.
40 × $15 = $600. Note that the basic element of overtime is classified as a direct cost. The
normal treatment of overtime premium is for it to be treated as an indirect cost.
As is stated in the answer, it is only the overtime premium that is classified as an indirect cost.
The basic pay (of $15 per hour) is a direct cost whether or not they were overtime hours.
Have you watched my free lectures on accounting for labour?