Forums › FIA Forums › MA2 Managing Costs and Finance Forums › Job Costing – Question about a worked example
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- April 30, 2014 at 6:19 pm #166927
Job 2409 data on labor hours worked:
Dept. P 300 hours , of which 100 were overtime
Dept. Q 200 hours, of which 100 were overtime.OT is not normal in Dept. P, where basic pay is 6/hr and OT premium is 1/hr.
OT in Dept Q was worked upon request of the customer. Basic pay is 8/hr and OT premium is 1.5/hr
Overheads are absorbed at 3 per direct labor hr in both depts.
What is the direct labor costs of Job 2409:
Labor Costs:
Dept P 300×6 = 1800
Dept Q 200×8 = 1600“OT premium will be charged to the OH in case of Dept P, and to the job of the customer who asked for OT to be worked in the case of Dept Q”
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my question:
in case of dept Q, the total direct labor cost wd be 200×8 + 100×1.5, since the customer requested it.
why does the answer above the dashed line not include the ot premium?
also, since OT premium for Dept P is an indirect cost, are the following statements correct:
* in calculation of the full production cost, the rate at which the OH are absorbed, takes care of the OT worked – so we can ignore the ot premium in calculating full production costs
* generally, indirect costs are not taken at actual for job costs, since the absorption rate is taking care of the overheads.
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