In a factory there are 50 workers, working 8 hours per day including 30 minutes for lunch break, worked for 160 days during a period of six months…

CA Intermediate · Cost and Management Accounting · PYQS · September 2024
In a factory there are 50 workers, working 8 hours per day including 30 minutes for lunch break, worked for 160 days during a period of six months ended on 31st December, 2023. During this period total employee's cost was recorded - 3,90,000. The management of the factory decided the overtime premium rates for the month of January 2024 as under : Sundays and holidays 180% of basic wages rateBefore and after normal working hours 160% of basic wages rate During the month of January 2024, the factory worked on a job BX in the following manner. Normal working 2,400 men hours Overtime on Sundays and holidays 200 men hours Overtime before and after normal working 400 men hours Total hours 3,000 You are required to calculate the labour cost chargeable to job BX and overheads in each of the following situations: (i) Where overtime is worked regularly in whole year as a policy on account of shortage of workers. (ii) Where overtime is worked irregularly to meet the requirement of production. (iii) Where overtime is worked at the request of the customer to complete the job in time. (iv) Where overtime is worked on account of flood in the area.

Suggested Answer and Working Notes:

(a) Workings Calculation of Basic Wage Rate Effective Working Hours for six months ended 31st December, 2023 = 50 workers x (8-0.5) hours per day x 160 days = 60,000 hours Basic Wage Rate = 3,90,000 / 60,000 = 6.50 per hour Basic wage rate :6.50 per hour Overtime wage rate for Sundays and holidays :6.50 × 180% = 11.70 per hour Overtime wage rate before and after working hours :6.50 × 160% = 10.40 per hour Computation of average inflated wage rate (including overtime premium): Particulars (₹) Annual wages for the normal time (56,250 hrs × ₹ 6.50) 3,65,625 Wages for overtime on Sundays and holidays (750 hrs × 11.70) 8,775 Wages for overtime before and after working hours (3,000 hrs × 10.40) 31,200 Total wages for 60,000 hrs 4,05,600 Average inflated wage rate = 4,05,600 / 60,000 hours = 6.76 per hour (a) Where overtime is worked regularly as a policy due to shortage of workers: The overtime premium is treated as a part of employee cost and job is charged at an inflated wage rate. Hence, employee cost chargeable to job BX = Total hours × Inflated wage rate = 3,000 hrs. × ₹ 6.76 = 20,280 (b) Where overtime is worked irregularly to meet the requirements of production: Basic wage rate is charged to the job and overtime premium is charged to factory overheads as under: Employee cost chargeable to Job BX: 3,000 hours @6.50 per hour = 19,500 Factory overhead: {200 hrs. × ₹ (11.70 – 6.50)} + {400hrs × ₹ (10.40 – 6.50)} = {1,040 +1,560} = 2,600 (c) Where overtime is worked at the request of the customer to complete the job in time. Basic wage rate is charged to the job and overtime premium is charged to job as under: Employee cost chargeable to Job BX: 3,000 hours @6.50 per hour = 19,500 Overtime premium: {200 hrs × ₹ (11.70 – 6.50)} + {400hrs × ₹ (10.40 – 6.50)} = {1,040 +1,560} = 2,600 Total = 19,500 +2,600 = 22,100 (d) Where overtime is worked on account of flood in the area Basic wage rate is charged to the job and overtime premium is charged to costing P & L Account as under: Employee cost chargeable to Job BX: 3000 hours @6.50 per hour = 19,500 Costing P&L A/c : {200 hrs × ₹ (11.70 – 6.50)} + {400hrs × ₹ (10.40 – 6.50)} = {1,040 +1,560} = 2,600 Total = 19,500 + 2,600 = 22,100

Topics: Employee Cost & Direct Expenses

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