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John Moffat.
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AbrahamChinYuan
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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.
Solution:
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.
John Moffat
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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?
AbrahamChinYuan
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