Greenfield Apparel Manufacturing Ltd., a garment export unit located in Tirupur, Tamil Nadu, employs a team of skilled tailoring and finishing-line…

CA Intermediate · Cost and Management Accounting · MTP · September 2026
Greenfield Apparel Manufacturing Ltd., a garment export unit located in Tirupur, Tamil Nadu, employs a team of skilled tailoring and finishing-line workers. As part of its annual cost audit, the HR and Costing department has been asked to determine the true cost of employing each worker — including hidden costs like idle time, welfare schemes, and statutory contributions so that pricing for export orders can be set accurately. The following data has been extracted from the company's payroll and cost records for the year: Particulars Details (i) Salary (each employee, per month) ₹28,000 (ii) Bonus 20% of salary (iii) Employer's contribution to PF, ESI, etc. 12% of salary (iv) Total cost of employees' welfare activities ₹5,28,000 per annum (v) Total leave permitted during the year 24 days (vi) No. of employees 220 (vii) Normal idle time 60 hours per annum (viii) Abnormal idle time (due to machine breakdown) 40 hours (ix) Working days without leave per annum 312 days of 8 hours (x) Overtime worked 100 hours per annum, paid at double the normal hourly rate You are required to CALCULATE: (i) The Annual Cost of each employee (ii) The Employee Cost per Hour (iii) The Cost of Abnormal Idle Time per employee, arising from the machine breakdown — information the production manager needs to justify a compensation claim against the equipment supplier (iv) The Overtime Premium per employee, and whether it should be treated as part of normal employee cost or charged separately.

Suggested Answer and Working Notes:

1(a) (i) Annual Cost of Each Employee Particulars ₹ 1. Salary (₹28,000 × 12) 3,36,000 2. Bonus (20% of Salary) 67,200 3. Employer's Contribution to PF, ESI, etc. (12% of Salary) 40,320 4. Employees' Welfare cost (₹5,28,000 / 220) 2,400 Total Annual Cost 4,45,920 (ii) Employee Cost per Hour Particulars Hours Effective Working hours (312 days × 8 hours) 2,496 Less: Leave days (24 days × 8 hours) 192 Available Working hours 2,304 Less: Normal idle time 60 Net Working Hours 2,244 Employee cost = ₹4,45,920 Employee cost per hour = ₹4,45,920 / 2,244 hours = ₹198.72 Employee Cost per hour = ₹198.72 (iii) Cost of Abnormal Idle Time, per Employee = 40 hours × ₹198.72 = ₹7,948.80 (iv) Overtime Premium per Employee Normal hourly rate = ₹198.72 (employee cost per hour, as computed above) Overtime is paid at double the normal hourly rate. Particulars ₹ Overtime wages (100 hours × ₹198.72 × 2) 39,744.00 Less: Normal wages for those hours (100 hours × ₹198.72) 19,872.00 Overtime Premium 19,872.00 Treatment: The overtime premium of ₹19,872 should generally be charged to Costing Profit & Loss Account as an abnormal/separate cost (i.e., not included as part of normal employee cost) if the overtime arose due to a customer's specific rush order or abnormal circumstances. However, if overtime is a regular feature of production policy (e.g., to meet normal capacity shortfall), the premium is treated as part of normal employee cost and absorbed through the overhead/production cost of the related cost centre. Since the question does not specify a customer-driven rush order, the overtime premium here is best treated as part of normal employee cost, to be recovered as a factory overhead rather than charged off entirely to Costing P&L.

Topics: Employee Cost & Direct Expenses

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