Premium overtime as production overhead ? Why ? (previously posted on the Forum)

[dsa91]

Dear Sir Moffat,

Firstly thanks for your great lectures, i have learned a lot and still learning through your amazing platform !

However , i’m still confused about the reason why we allocate the premium overtime into production overhead ?

For more details , please refer to the link below about my previous discussion in the Forum relating that matter.

https://opentuition.com/topic/accounting-for-labour-premium-overtime-as-overhead-production-why/#post-439697

Thanks & Regards

[John Moffat]

Have you watched my free lectures as secondstar suggested?

The basic pay for all hours worked is treated as a direct cost. That is what the labour cost should have been, and what would have been on the cost card.
The extra paid for any overtime hours is still obviously a cost, but should not really have happened, and is therefore treated as an indirect cost i.e. as an overhead.
The exception is then the overtime was for a specific job at the request of the customer – then it was a direct labour cost for that specific job.

[Author]

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