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Hello Sir,
Could you please help me with the following question?
A company operates a job costing system. Job 874 requires 110 labour hours of labour at $8 per hour. Material and other expenses amount to $1700. There are 3 employees whose basic hours are 30 hours per week. All work is to be completed in one week at the specific request of the customer. Overtime is paid at a time and a quarter.
What is the total direct labour cost of Job 874?
Ans: 920.
Sir, I understood the part about the extra hours, which would be 20.
so the overtime payment would be for 20 hours
The OT premium would be $40.
So the total cost would be 110*8=880+40.I just wanted to check if my understanding is correct about the overtime element.
Overtime payment consists of the basic and the premium part.
For the job cost we only included premium because we can relate it directly to the job and it’s at the customer’s request.
But we don’t include the basic pay element since the question wants us to find the Labour cost of the job and not the wages?Could you please confirm if my understanding is correct?
Would really appreciate it.
thank you!The direct cost is the basic pa for all hours worked (whether or not any of the hours are in overtime).
So the direct cost here is $880 in all cases. Given that the overtime was at the request of the customer the overtime premium is also a direct cost, giving a total direct cost of $920.
If the overtime was general overtime and was not at the request of the customer, then the direct cost would be $880 and the premium of $40 would be an indirect cost.
Oh right, I get it now.
I was looking at it from the POV of the employee’s 30 hours.
But for the job, it would be a total o 110 hours, which would include the base pa of the overtime payment as well.Thank you so much sir!!
It makes sense now!
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