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Chapter 4

Chapter 4 focuses on labor costs in accounting, detailing their classification into direct and indirect labor costs, and the importance of managing these costs for company profitability. It covers various wage payment plans, timekeeping methods, and the responsibilities of different departments in payroll processing. Additionally, the chapter discusses accounting for overtime premiums and employer contributions to labor costs.

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140 views16 pages

Chapter 4

Chapter 4 focuses on labor costs in accounting, detailing their classification into direct and indirect labor costs, and the importance of managing these costs for company profitability. It covers various wage payment plans, timekeeping methods, and the responsibilities of different departments in payroll processing. Additionally, the chapter discusses accounting for overtime premiums and employer contributions to labor costs.

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Zymon Angeles
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
| Chapter 4 om Koo Accounsine rontapon By SIL ~ chm 4 Learning Objectives At the end of the chapter, the students should be able to: 1. Know the classification of labor costs. 2. Prepare journal entries of labor costs. 3. Know the different departments responsible for labor costs. Know the different methods of time keeping, Differentiate the types of wage plans. Know the advantages and disadvantages of different wage plans. Know the accounting for overtime premium. Enumerate the different employer's labor contributions. een ane Know the different labor time losses. Labor cost is one of the primary costs of production system. It consists of workers’ wR | payroll who are needed to process and convert raw materials into finished ed Itis classified into (1) direct and (2) indirect labor cost. Direct labor iS @ payroll” costs that are paid to workers who are directly engaged in the conversion process of raw materials to finished goods (i.e. wages of laborers who are actually involved Jaboris any'payrdll costs that are paid to a worker that supports the production’ Syl = eee cee Siburage ‘The employee's earnings for that day ts computed as: 8 8 Eaminge at regular rate (8 hours x P100) Overtime (2 hours x P100) 200.00 + (2 hours x P50) 100.00 aa Overtime premium Total Earnings dheg X 100 X 0% rhe overtine BO MPs sed on P00 rela te er Ree Accounting for Overtime Premium ‘workers are called to work for rush ondere ¢ rledge that overtime is 1. Charged to, Specific Job~if upon specific Te required to finish the job, the overtime premiun is charged to Work in Process account. The éntry would be Worl in Process 1,100 ER- Fixed (00 ‘employee which includes the Salary. Wages rity System Premiums Payroll 2. Charged to Manufacturing Overhead Contsol- ifthe, which cannot Be completed In the regular working Jutinium is charged to Factory Overhead Control account. The entry would 1 = yee ia required by law to pay his/her contribution t0 ot icted from the salary for his/her ie retirement and death. 202 Work in Process 1,100 Factory Overhead Controt Payroll 201 : eg Ree, Ee Range of Compen, Below 2,250 Monthly Salary Credit 2,000) 2.800 3,000 pailheaith/Medicare Contribution 4 Tt is the amount deduct Tre em equivalent to 2.79% fy both the Shpleyee andemployer. The {able 2020 for employed SiEimbers and formal economy is pre jonthly Premium [275.007 2. 4 s 6 aT 156,587 |pee,e67- | |P666,667 telow _[P33,332 (P96,666 |P 166,666 Jpsse.606 land above Sas L350 | cercor™ [[Link] | eeacer 25 pt ~ 40,79 = 4,175 20 Ve = : On Sarfenry 99/2020, Mare Corporation has the following [e "25% [Link] [92% foo,ss03 2.09 Employees [Tare Tosh Jona 2, PAG-IBI@ Contribution ye amount deducted fom the employes Home Development Mutual Fund. Th Required: Prepare th a. Tae SSS, Phil B. The journal en | Chapter 4: A Closer ‘The SSS Computation Schedule: Use the sal ie salary bracket P19,750. and above for Paul, Josh and Jol Salary bracket P16,750 - 17,249.99, for Ivan and salary bracke: 18,299.99 for Zoe, book on Cost Accounting SAREE EA Closer ook on Cost Accouing Accounting for Labor ‘withholding Tax Computatios x ‘of the monthly wit Tapioges Sime) [2,800] ‘680 2,080" 300 2.400] 300 2.400 72160] th Contribution 550 11,400 37850. Taxable Income 2 9 0:027S iy 275% to get the monthly premium, aqually fy the employer andthe employes, iployer | Employee Employees | Eamings | Monthly Premium | Shere | Share Paul 0,000 7,100) 350 Twa 77,000 68 733.75] 733.75 [Josh 25,000, BE a5 3A. John 72,000, 605 302.30] —302:30 Zoe 8,000 495 AT.30_| “247-30 Total "723,000 3555 1,677.50 | 1,677.50 ‘The Pag 181G Comput Use the salary bracke' employees will be the employees. The employer's and ‘subjected to 396 contribution rate. 2. Ivan (column 1) = 3. Josh [column 2) Fire lyees | Monthly Gross Baring a a Ta 77000 340 Jaa 23,000 300 Joi 22.000 a0 a 00 “360 [reear Taz,500 240 205 4. John (column 1) 5. Zoe column 1) eee a ee i piesa VEE TE a ca Bn based on the monthly farnings of the employee er 4: A Closer look on Cost Accounting ZA Closerlook onCostAccouing Payroll Sheet of Marie C PAYROLL SHEET wrax_| sss lowe 5,629.25 | 00 308.60 | 300 | 363.75 ‘200 | 902.80. =] 720 [297.50 3.85, 3,676.75 2,440 be recorded by the company: and employee contribution 122,000 tn S000 Juan ,20¢ and ash Paul ‘Tehn 5,800.00 1,677.50 2440.00 Accounting for Labor ACS a pra Snes the month sation: Marie Corporation has the folwing payroll summary for tus of august 320,000 25,000 ‘the following is the Journal entries to be recorded by the company: 1d employee's contribution 1,600,000 ae WTAX Payable 512, SSS Premium Payable "40,000 Philhealth Premium Payable 16,000 PAG-1BIG Premium Payable 1000 369,000 Acerued Payroll Torecord payroll for the month of August 2, To record the distribution of payroll ¢ factory employee's salary is considered indirect labor. '900,000 41,600,000 5» such as SSS, Philhealth and PAG-IEIG joyee is the same as the contribution share of the ry would be: 35,500 21;500 440,000 16,000, 1,000 Jook on Cost Accounting poe Nee vores Zi paikio = LABOR TIME Losses Vocal Pensi ‘otal finge bent acest ogra NEE cost aoa 20000 1 Paytoy served Payroll 9, To record labor distribution Workin Process 20,000 that does not relate (0 ditect labor cast shel Be oncountel Payroll 0,000 wa Flowever, abnormal idle time is trestedas ape Expense 3, To recon fringe benefits liability MACHINE SB1-UP TIME 2.776 ae eer prodietve hours paid to workers while the machines are 1.739 ‘70 167 4. Shift Premium Pay ~ cost of labor i Also known as Night Differential Pay ‘5. Incentive Plans ‘Mlustration: Mr. James, «factory laborer earns P20,000 per month, and the Zinpany paye one month salaryas a Bonus at the end ofthe year. Mr. James is cnuited to # half month paid vacation leave. Tbe company also pays P2,000 & ‘All finge benefits of factory laborer are ie benefits are charged 210 209 yee Charged t te production during the 11 % months the employee i Accounting for Labor Chapter 4: A Closer look on Cost Accourting SRA tet bok om Cost Accounting EXERCISES Dater Score! considered ds direct labor. ry Overhend cont (sare wages paid to workers who are directly engaged in the shed goods. requires correct time keeping Labor costs significantly influence the prime cost pe Labor costs significantly influence the conversion cost per unit. inventory account, sis of output in performing 15, Indirect labor costs are charged to worie in proce 16, Im Piece Based Wage plan, wages are determi produced by the workers without considering’ the job. 2a a +5 sh 4 29, Time booking re ] 31. the regulai ona ban ait snl , 1A bern ayo Seer smaainpent be pea eet ne v8 Te pel eres See eaten 19. Ors ere who produce more units. fon of salaries and provides incentive 10 ‘compared to material cost. 20. Labor costs are less difficult to cont 21. The overtime pay of workers may be debited to the factory overhead control acco! © me of the disadvantages of time based wage plan is the decrease in the 22. One ot Stone workers who work more efiezemily than other workers 25, Intime based wage plan, wages are determined on the basis of time worked [Bum pworkare ineapective of the quality of work done 24, The cost accounting department is responsitic in collecting, classifying and Biguing ail coote £0 jobs, products and processes. ‘The Modifed wage plan isa combination of time wage plan and piece wage fan Modified based wage plan is also known as premium bons plan. Timekeeping Depactment has two important activities auch as timekeeping “ost Accounting Department is responsible for the planning recruitment, and firing of the labor force. the analysis of time of each worker in terms of cess or jobs, department, ope 30, One of the primary objective of management is to efficienty utilize ite human resources as economically as possible. ime pay of the workers is debited work in process inventory ‘The overtime pay of each worker may be debited to workin process inventory When workers are called to work for rush orders upon specific request of a customer, the overtime premium is charged to Factory Overhead contr cr __ Chapter 4: A Closer book on Cost Accounting a at rk copes wk oie no mt Factory Overhead control account. sme Memmi Maret to oF Te casas in pny copes vo aes Sate try mle gern tm Bg tts a ssa pe tas oe ate ae te om SS tenn sg cre by law withhold employees contributions to 42, Wages are earnings of an employee who are paid on an hourly worked or per procuction output 43, The two types of ide time are the normal and abnormal il 44, Abnormal ide time refers to aloss of time, which is inherent in production, 45, The example of normal idle time is lunch break time. 46, Machine setup time is the non-productive hours paid to workers while the ‘machines are being prepared for new Jobs. |” 47. The example of abnormal ide time is the time loss due to strikes. “P48, Salaries are eamings paid to an employee who receiveda fixed amount per month or semi-monthly regardless of the hours worked in a period. 49, The normal idle time is treated as an expense. 50. The abnormal idle time Is treated as an expense 213 Direct Labor Net pay is computed based on: a contribution Chapter 4: A Closer lok on Cost Accounting ee 4 Gross ay less SSS, Phithoalth, Pag-itigcontsbution given to employee by the employer eae 9. Which ofthe oliowings not charge te fatoryovertiead control aco 2 nine contribution of employee af ae time prem pay ofon epayee © Holiday pay : peng Shit Boman 10. The wage in excess of regular rate paid ater « normal working hour ie? a.” Shift Premium ©. Holiday pay be Overtime premium «Vacation pay 11. A payroll costs that are paid to workers who are directly engnged in the conversion process of raw materials to finished goods a. Indirect Labor , Administrative Salary be Direct Labor 4. Sales Salary 12, When overtime premium is charged to a specific ob, t should be debited to: a, Factory Overhead Control account, Is determined by the number of hours worked. °c. Piece work system b. xed Salary per month 4. Bonus schemes 15, SSS, Philhealth and Pag-ibig Contribution are levied on a. Employee only ¢, Employer and Employee b. Employer only 4. Employer nor Employee 16, The following are charged to the factory overhead control account, except: a. SSS employer share ¢. Shift Premium pay B. Sick Ieave pay 4 Withholding Tax of the employee 17, A fringe benefit of office staff is charged 8, Workin Process account «Selling Expenses BW Administrative Expenses __d. Factory Overhead Control 215, ‘Accounting for Labor san nd Lo eae ne Asolo i Premium pay of factory supervisor in charge 12: one = epee Expenses, b Admi pen PoPactory Overhead Control ite Premium of factory Inborer i charsed to 19, ShitVockin Process account cSelling Expenses f Muinistrative Bapenses 2 Factory Overhead Control inge Benefit ofa factory laborer is charged to 20. Fringrork in Process account’ Selling Expenses Bepenses _a¢ Factory Overhead Control B) Administrat Js the amount paid to the employee after the employer makes a deduction + a. Total labor cost ‘cost control, except: 22. The following are departments responsible for labor a. Payroll Department ©, Personnel Department sh’ Purchasing Department 4. Cost Accounting Department 1¢ total hours 23. This department is responsible for the accumulation of the worked spent by each worker on a job, product, and processes. 2 Production Department ', Payroll Deparment b. Cost Accounting Department a. Timekeeping Department 24, Tals department is responsible for carrying out labor policies laid down by the top management 44. Production Department ©, Cost Accounting Department b. Payroll Department _a® Personnel Department «, Time-booking 4. Financial Accounting sponsible for the preparation of the plan for each job ing efficient working condition, conducting time and 2 Production Department , Payroll Department 1b. Cost Accounting Department Engineering Department 27. This department is responsible for the computation of the total gross camings and the amount of the payroll deductions. &, Cost Accounting Department ¢. Production Department bi Payroll Department a. Engineering Department 216 FJ_-aa Chapter 4: A Closer look on Cost Accounting ae ee 28. It refers to the analysis of time of each worker i is of time of each worker in terms of de} operation, process or jobs, eee -& Time-booking ¢. Cost Accounting D. Timekeeping d. All of the above 29, It is a wage plan calculated by multiplyingthe number of units produced by a specified rate per unit, a. Time based wage plan . Piece based wage plan b. Modified based wage plan“. None of the choices 30. The following are advantages of time based wage plan except: 4a. , Simple and economical to use. br“ It provides additional incentives for workers to achieve production id basedon the time spent in the factory, ‘kers because they will know that are he factory. dhe job is not done in‘a hurry. Judes preparation of payroll, effective utilization of human resouress, ing labor costs, discipline in attendance and determining the ideal labor time and machine time. a. Time-booking ©. Cost Accounting. be Timekeeping @.Allof the above 92, If the overtime premium is caused by a regular order which cannot be completed in the regular working hours, itis debited to: ‘2. Work in Process Inventory. Finished Goods Inventory bi Factory Overhead Control, Expenses 33, If the overtime premium is caused by the rush orders upon specific request ofa customer with the knowledge that overtime is required to finish the job it is debited to: fa. Finished Goods inventory _¢/Work in Process inventory D. Expenses: ‘Factory Overhead Control 34. The following are examples of the empl a. SSS contribution b. Philhealth contribution 35, The following are example of labor time losses except: a. Idle time be Overtime & Machine set-up time Labor cost of feworking effective units 27 Accounting for Labor Eo ai nee eee leductions, exce following are workers payroll ded 36. TH 595 contribution Papi f hholding taxes swingare the data for the month of September of Garden, Grove Com. Howe Worked MOR Tas] Wer | Ths [RPS Toe aT Wat F ro =z + TE 7 ss: = 0 1 Tors ead one alimes the opr ater rien Grove pay is Ee o : Garden Grae andthe vate fo hour woried on Sunday i tice tee er cuing ae deductions from gost earings S85 5% Spaeapiig 2 and income ax 29% + How much of the total payroll cost will be charged to the factory overhead control account? .Pias crue jers26s «total amount charged to work n Process acount i a ea2 100 te 0,525 S pisos 4 par 368 ah Comp provides for an incentive scheme for its factory workers which Combined minimum guaranteed wage and a piece rate. Ba Heart Te paid P200 per piece with a minimum guaranteed wage of P15,000 per week Production report for the week show: Employee Name Irene Aileen Julius Harold What is the amount of the weekly payroll that should be charged to work in - kon Cost Accounting Chapter 4. Chser bok on eee Accounting for Labor ‘What is the amount of the weekly payroll that should be charged to ay ee ee factory overhead control account? ‘Total accrued payroll changed to expense account is: ne « Pao Pp © Facto 7% Pro & 260,000 8 Bite a Pts Bh bel ae for the week would be: (oP6A,000 ota amount eamed by the worker ee oi ag one ee @ rancor. pays time and half for hours in excess of 40 per Week I Chee Bonus pay Chic, a worker is paid P50 per hour and works 45 hours a week, the tos] weekly gross earnings of Chic-Chie is’ 7% P2,250 6. P,125, “P2375 2,000 The amount charged to work in process if the overtime premium is changed to specific job. it nae ‘Avis Seibel ean te Te & p00 pias ‘The amount charged to work in process if the overtime premium is ct ‘Wages at basis of direct labor rates ‘325,000 to factory overhead control — hanged Shift Differentials 25,000 AC P2,250 . P2,375, Overtime Premiums 10,000 % pao bias forthe month January, what amount odret abr shouldbe charged 0 rx oowing aoe cata of ONCSKI Conertion Wesel eese acu The total eafg ofthe fellowing employees per day fr Papo or [_ Employee Wame st Day ~ Classification [= oe , 49, River Corp ha he allowing data fer he month of Decenbe 2050: Chie Faces Supeor co ra eee Johnson SOO" Laborer Jeny_ T2000" sales Supervisor employees work on a five day work week and are paid every Friday of the week, Using the calendar year method of accounting, determine the a (Withholding taxes $00,000 of cccsed parol forthe moth Bebe: hese Get oe ea To elas ee vo lo « P1000 4 Sontribution 200,000 | onan FHITiealth Contaoaor S500 ‘The total weekly payroll charged to work in process account is: Pag-ibig Contribution 30,000, Paseo 7,715 000 to direct tabor, 2% . to incirect labor, 25% to administrative and 5% to Sales salary. The company 29 220 a ST ee, Chapter 4: A Closer look on Cost Accounting SC also apportions employer's contribution as follows: 70% to factory overheag 25% to administrative and 5% to selling expenses. Compute the total amount ofpayroll tobe charged towork in process accoy pa ‘c. P3,500,000 " How much is the total expense charged to sel ‘a. 1,500,000 ‘¢.P5,000,000 Db. P1,S78,000 4, P5,260,000 How much is the net payroll? a. 4,340,000 . P4,080,000 000,000 «d. P4,600,000 the amount to be recorded in the work in process ©. Pa2,200 «4. Pa8,700 The total amount to be credited to accrued payroll for the month of October . P42,200 . P48,700 amount to be debited to factory overhead control account, if me frvinhun ‘is charged to specific job? ‘. P50 74P0 Accounting for Labor SS —VOo ‘What is the amount to be debited to factory overhead control account, if overtime premium is charged to the factory overhead control account? 7c. P500 PO amount to be debited to Work in Process account if overtime Sharged to the factory overhead control account? ©. P5,500, PO he amount to be debited to Work in Process account if overtime premium is charged to specific job? ‘a. 4,000 76. P5,S00 5,000 a Po Gar Bowin Rafacl, a machine operator has a wage rate of P00 per hour. The company pays time and half for time over 40 hours per week. How much of these earnings shouldbe charged to work in process inventoryaccount ifMr. Enwin Rafael worked for 45 hours in a week. a. P16,000, ‘P2700 b. P18,000 d. P24,000 How much of the earnings are charged to factory overhead control account ‘a. P8000 2c. PL,000, 9,000 «4. P5,000 ‘The total gross eamings of Mr. Brwin Rafael a. P27,000 7. P19,000 b. 24,000 4. P17,000 222 —— Recounting for Labor Chapter 4: A Closer look on Cost Accounting Gece we Ao say ae Ses 9s omen Bee 1 journal entries to record STRAIGHT PROBLEMS ypequired: Prepare the journal [Recording the 3 Baber Distribution Problem 1: Gross Pay and Net Pay ani 7 CPA Corp. pays its employee ata rate of P50/hour. The tax and other deductions - ‘amount to 20% of monthly income in excess of P1,000. Ifan employee works 49 .¢ Premium Peay S770 Hours tals oath ther is pad P1SO per hour fora regular work of 40 hours, fe Imin worked 45 hours and eamed time an Required: Compute the following: 5. sone repare journal entries, assuming Peis rn es noe peices Sag! Sota eh ein eer employees: Lz — Hours Worked weit [nowt [5 Tone toe) wat tues] na [eae [soe Bafa | Mon nue) ee ei a Ge jones 300 [5-810 [8 a] 36 Saas 1,000 [5 S s 6 Zz 3S 36 1 for hours in excess of 40s one and half times the regular rate. The mte rs worked on Sunday is twice the regular rate wing data forthe third week of January: sification | Hours Worked | Rate per hou Laborer cs 50 ice Secretary 26. 45 Taborer 30, 32 and the company pays Jay Supervisor ss | as James is entitied to Eavard aa zi —# ‘The company also pays P4,000 a year into a = 48. ~ fringe benefits of factory laborer are charged to ‘account. The fringe benefits are charged to during the 11 % months the employee is at work Compute the total liability for fringe benefits and prepare the journal to record the incurrence of labor cost, distribution and fringe benefit The following are to be deducted to the gros eamings of employees With grea eee Pag-iig Richard Corp. pl its employees one and h wotked in exces of 0 hore. é) 223 224 aS % 1e8 the regular rate for hours caper 4: A Choset look on Cost Accounting ae aT eae gp ae ae Problem 7: Journal ere data for the month of O roblen, 7 has the following data forthe month of October 2060: rosa Payroll 7,000,000, Employee's Deductions: SSS Contribution. 20,000, Philhealth Contribution 70,000 Pag-ibig Contribution 10,000 Withholding taxes 700,000, ‘The employer taxes are as follows: ‘38S Contabatfon 0,000, 10,000 70,000 = ‘The company distributes its total payroll as follows: 50% to direct labor, 20% to indirect labor, 25% to administrative and 5% to Sales salary. The company also mas follows: 70% to factory overhead 25% to trative and 5% to selling expenses. Prepare the journal entries for: a. Labor Incurrence ©. To record employers’ contri BL Labor Distribution d. Payment of Accrued Payroll Problem 8: Journal Entries ‘The following are data available for the month of November of Sta. Teresita Comp [5500] 425,000 35,000 35,000. 125,000 Required: Prepare the journal entries for: ‘a. Labor Incurrence Labor Distribution Payment of accrued payroll _ Accounting for Labor Ecotec Hours Worked Employee | Hourly Name | “Rate | Sun | Mon Wed Total x 200_| = co = 250_—|-3 2 a 300_| 4] 8. 36 D 30-810 ST m {3} ss }o 30. Garden Grove pays its employee one andone-halftimes the regularrate forhours worked over 40 and the rate for hours worked on Sunday is twice the regular rate. The followingare deductions from gross earings: SSS 8%; Philhealth 2% Pageibig 2% and Income tax 25%. Required: Prepare journal entries to record payroll Problem 10: Accounting of Idle Time , ‘The following data on ABC workers idle time are as follows: Normal Abnormal Idle | Wage Rate Idle Time Time per hour Mr. Sy Factory Supervisor 6 2 400 Mr. Yee Pactory laborer 8 a 250 Mr. Ty Factory laborer 8 2 250 Required: Prepare the journal entry to record the idle time of the three workers. 26

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