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Hi
In relevant costing , when labours are paid overtime
for eg if labour is at full capacity and needs to work overtime for 500 , suppose they are paid $10 per hour and overtime is paid at 30%
is the overtime payment 500*10*1.3 or (500*10) overtime basic + 500*10*1.3 (premium)in some questions only premium is calculated and sometime both premium and basic is calculated. Can you help ?
Is it like if they have spare capacity but will be paid overtime for a contract we calculate only premium part as relevant cost
if they have no spare capacity but we are asking them to do overtime then we have to pay both basic and premiumis my understanding correct
In answer to your first post, if labour is at full capacity then the cost of working an extra 500 hours will be neither of what you suggest!!
They will have to pay for 500 extra hours, and the cost per hour will be 500 x 10 x 1.3
(the premium is 30% and so they will be paying $13 per hour).In answer to your second post, you cannot learn this as a rule. It depends on the wording of the question. The questions in PM are testing your understanding, not that you have learned rules.
Sorry John. I’m a little confused as i saw these two methods in two different questions. Usually in F2 when we calculate overtime we always calculate basic part and premium part correct ?
So if labour is in short supply and utilised at full capacity therefore for a new job for which 200 hours are required overtime should be worked at 40% for which a premium of 20% above the normal rate is paid. normal rate is $5/hourHere answer says relevant cost is 200*40% *5 + 80*5*1.2
they calculated basic and premium here i dont understand why ?
Firstly Paper MA is testing different things when it comes to labour.
As far as the question you have just typed out, it seems that you have not copied it correctly because ‘overtime should be worked at 40%’ does not make any sense.
Extra work not needing overtime will be paid at $5 per hour.
Extra work done in overtime will be paid at $6 per hour ($5 plus a premium of 20% x $5).
Sorry John it says 40% of the time required would be done as overtime . so i seem to understand now
here they are getting paid normal pay for 60% of time plus 40% like an overtime pay is that correct >
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