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Labor costs: Overtime and Overtime premium calculation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Labor costs: Overtime and Overtime premium calculation

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 22, 2024 at 7:35 am #705811
    sprinkles
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    Sir why are the calculations different in these two questions answers . I am getting confused on how to calculate overtime payment and over time premium

    Q1. Vienna is a direct labor employee who works a standard 35 hours per
    week and is paid a basic rate of $12 per hour. Overtime is paid at time
    and a third. In week 8 she worked 42 hours and received a $50 bonus.

    ANS: Basic pay for standard hours = 35 hours × $12 per hour = $420
    Basic pay for standard hours is a direct labour cost because the
    work involved is directly attributable to production.
    2 Basic pay for overtime hours = 7 hours × $12 = $84. This is also a
    direct labour cost because the basic rate for overtime is part of
    the direct labour cost. It is the overtime premium which is usually
    part of the indirect labour cost.
    3 Overtime premium = 1/3 of $12 = $4
    Total overtime premium = 7 hours × $4 = $28

    Q2. An employee works for a standard week of 40 hours at an hourly rate of pay of £8.20. Any overtime hours are paid at time and a half.
    In one week, he/she works for 45 hours.

    (i) What is his/her gross pay, showing the overtime payment?

    (ii) What is his/her gross pay, showing the overtime premium?

    Solution
    (i) £
    Basic hours 40 × £8.20 = 328.00
    Overtime payment 5 × (£8.20 × 1.5) = 61.50
    ––––––
    Gross pay 389.50
    ––––––
    (ii) £
    Basic hours 45 × £8.20 = 369.00
    Overtime premium 5 × (£8.20 × 0.5) = 20.50
    ––––––
    Gross pay 389.50

    May 22, 2024 at 8:21 am #705818
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    It is because one question asks for the overtime payment and the other asks for the overtime premium

    The basis rate of pay is $8.20 per hour. They are paid for overtime at time and a half and so the rate paid for overtime hours is 1.5 x 8.20 = $12.30 per hour.

    So the pay for overtime is $12.30 per hour. The premium is the extra over and above the basic rate and so the premium is 12.30 – 8.20 = $4.10 per hour.

    May 22, 2024 at 9:22 am #705820
    sprinkles
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    ok sir i get it now thank you

    May 22, 2024 at 4:15 pm #705841
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    Great 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Labor costs: Overtime and Overtime premium calculation’ is closed to new replies.

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