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Accounting for material (Labour direct and indirect cost)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for material (Labour direct and indirect cost)

  • This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 26, 2014 at 8:47 pm #171066
    Chioma
    Member
    • Topics: 3
    • Replies: 4
    • ☆

    Good Evening Mr John,

    Thanks for the lectures, you are awesome. Please I have 2 questions for you;

    1)When it is said ” overtime is paid at time and a quarter” what does it mean?

    2)Skilled workers are considered to be direct workers and are paid $10 per hr. They worked 20hrs overtime this week, 12hr on specific orders and 8 on general overtime. Overtime is paid at a rate of time and a quarter. I am am required to calculate total overtime pay considered to be direct cost?

    This is what was given as the solution
    Specific time (direct cost) =12hrs ×$10×1.25
    General overtime (direct cost) = 8hrs×$10×1
    ” (indirect cost) = 8hrs×$10×0.25

    I do not understand how 1.25 was gotten and why it was split in general overtime as 1 for direct cost and.0.25 as indirect cost.

    Pls help,

    Thanks.

    May 27, 2014 at 5:52 pm #171204
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    1) If overtime is paid at ‘time and a quarter’, it means that for every hour overtime they work you will pay them for 1.25 hours.

    So….if you pay workers $5 per hour and they work 20 hours of overtime, then the amount you will pay them for the overtime will be 20 x 1.25 x $5 = $125

    2) Looking back at my example in (1), for the overtime work they are paying an extra $25 above what they would normally pay (normally they would be paying 20 hours at $5 = $100).
    If overtime is for a specific job, then all the cost of it is treated as a direct cost.
    If it is just general overtime (not for any specific job) then only the normal rate ($100) is treated at a direct cost, and the extra ($25 in my example) is treated as an indirect cost.

    May 30, 2014 at 11:57 am #171882
    Chioma
    Member
    • Topics: 3
    • Replies: 4
    • ☆

    Thank you so much Mr. John. You are really awesome…. making very easy things that would otherwise be very difficult. Keep up the good work.

    May 30, 2014 at 12:13 pm #171890
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Thank you 🙂

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