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 6 months ago by John Moffat.
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- May 22, 2024 at 7:35 am #705811
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 = $28Q2. 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
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Gross pay 389.50
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(ii) £
Basic hours 45 × £8.20 = 369.00
Overtime premium 5 × (£8.20 × 0.5) = 20.50
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Gross pay 389.50May 22, 2024 at 8:21 am #705818It 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 #705820ok sir i get it now thank you
May 22, 2024 at 4:15 pm #705841Great 🙂
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