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Hi Sir. Im looking for some help regarding:
Employee H works a basic 37-hour week and is employed on product manufacture. He is paid at a rate of $11 per hour for the basic hours with a premium of 30% for any overtime hours. Employee H worked 5 overtime hours in Week 7 to satisfy sales demand.
What amount, out of the total gross wages for Employee H in Week 7, should be charged as direct labour cost?
A $407.00
B $462.00
C $478.50
D $423.50The correct answer is B.
I understand that this cost is a basic pay cost, since the workers worked not for a specific customer request. However I dont understand why we assign this cost as a direct cost and not overhead?
Forgetting the overtime side of it (because you are happy about that), any wages paid to workers involved in actual production is a direct cost.
It is only pay for non-production work that is classed as an overhead, for example supervisors salary. If they are a supervisor in the factory then their salary is a production cost, but because they are not themselves producing anything it is an indirect production cost or production overhead.
Thank you. I have another question for final clarification:
Jojo is an assembly worker earning 12$ per hour for a basic 35 hour week. Any overtime is paid at a premium of 50%.
In the last four-week period, Jojo was paid for 150 hours. During this time 15 hours were classed as idle duo to a machine breaking down. Also included in the number of hours are four hours overtime spent working for an urgent job at the request of the customer.
How much should be charged to the production overhead account for the four-week period?
A 216
B 240
C 288
D 360The correct answer is A.
workings: (15 hours x 12$)+((10 hours- 4 hours) x6$))=216So in this situation we assume that those 6 hours worked are overhead cost which incurred in overtime and because the question states that ANY overtime is paid at a premium of 50% we charge it for 6$?
Thank you very much John
Yes – correct. There are 10 hours overtime in total, and all of them are paid at a premium of 50% (i.e. $6).
The premium for the 4 hours at the request of the customer is treated as a direct cost, whereas the premium for the other 6 hours of general overtime is treated as an indirect cost/overhead.
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