Professional Documents
Culture Documents
WHAT IS LABOR?
1. Physical or mental effort expended in manufacturing
a product.
1. Direct labor
2. Indirect labor
DIRECT LABOR
Represents payroll costs that are allocated
directly to the product.
It is debited to work in process
INDIRECT LABOR
Labor costs incurred for a variety of job that
are related to the production process but are
considered either too remote or too
insignificant to be charged directly to
production.
It is debited to factory overhead control
account.
Procedures for recording payroll costs
1. Recording the numbers of hours used in total and by
job.
2. Recording the quantity produced by the workers.
3. Analyzing the hours used by employees to
determine how time is to be charged.
4. Allocation of payroll costs to jobs and factory
overhead accounts.
5. Preparation of the payroll, including computation
and recording of the employees gross earnings,
deductions, and net earnings.
DIFFERRENT WAGE PLANS
1. Hourly-rate plan
2. Piece-rate plan
3. Modified wage plan
Hourly-rate plan
Under this plan, a definite rate per hour is set
for each employee.
The employees wages are calculated by
multiplying the rate per hour by the number
of hours worked.
Piece-rate plan
Under a piece-rate plan, earnings are
calculated by multiplying the employees
output by the rate per piece.
The plan provides an incentive for the
employee to produce more
Modified Wage Plan
This plan combines the feature of hourly-rate
and piece-rate plans.
An example of this would be to set a minimum
hourly wage that will be paid by the company
even if an established quota of production is
not attained by the employee.
If the established quota is exceed, an
additional payment per piece would be added
to the minimum wage level.
Whose responsibility is the maintaining of the
labor records?
Assume an employee regularly earns P30 per hour for an 8-hour day.
If called upon to work more than 8 hours in a working day, the
Company will have to pay overtime premium for hours worked in
Excess of 8 hours. Assuming the employee works 12 hours on Monday,
Is paid 50% overtime premium (time-and-half) the earnings would
Be calculated as follows:
Direct labor 8 hours @ P30 P240
Direct labor 4 hours @ P30 P120
Overtime premium (4 x 15) 60 180
Total earnings P420
Entry
Work in process (240 + 120) 360
Factory overhead control 60
Accrued payroll 420
LABOR OVERHEAD
1. Waiting time or idle time
2. Make-up pay
3. Overtime premium
4. Shift premium
5. Employers payroll taxes
Waiting time or idle time cost of non-productive hours of
Direct labor caused by lack of work, waiting for materials delays
From scheduling, machine breakdown and machine set-up.
Example,
Let us assume Maxine Garcia spent 36 hours on Job 101 and was
Idle for 4 hours during the week. Maxines rate is P50.00 per hour
For a 40-hour week.
Example
Les us assume Maxine Garcia is paid P15.00 per piece produced and
During the week, she produced 80 pieces. If the guaranteed weekly
Pay is P1,500, then the difference between P1,500 and P1,200 is
Charged to factory overhead control.
Work in process-Job 101 1,200
Factory overhead control-Make up pay 300
Accrued payroll 1,500
Overtime premium represents amount paid, in excess of the
Regular rate, to employees working in excess of 8 hours in a day, or
Working during holidays or their rest day. Regular earnings represent
The total hours worked, including overtime hours, by the regular rate.
Overtime premium represents the overtime hours multiplied by the
Premium rate.
Example
Maxine worked for 45 hours during the week and she paid time and
A half
Example
Assume Maxine is assigned to night shift and is paid a shift premium
Of P20 per hour.