Question

The finishing department in a factory has the following payroll data for the month just ended:

Direct Workers Indirect Workers •

Total attendance time 2,640 hours 940 hours

(Including overtime) •

Productive time 2,515 •

Non-productive time machine Breakdown 85 hours -

Waiting for work 40 hours - •

Overtime 180 hours 75 hours •

Basic hourly rate K5,000 K4,000 •

Group bonuses K2,840,000 K710,000 •

Employer’s pension contribution K1,460,000 K405,000

Overtime, which is paid at 140%

basic rate, is usually worked in order to meet the factory’s general requirements. However, 40% of the overtime hours of both direct and indirect workers in the month were worked to meet the urgent request of a particular customer.

Required:

(a) Calculate the gross wages to direct workers in the month.

(b) Using the above information, record the relevant entries for the month in the finished departments’ wages control account and production overhead control account.

(Your should clearly indicate the account in which the corresponding entry would be made in the company’s separate cost accounting system (Working must be shown).

Answer 1

a) Gross Wages to direct workers in the month

Basic wages - Total Attendeance - 2640 Hrs

Rate Per Hour K5,000 (Per Hour)

Basic Wages - K 13,200,000

Group Bonuses - K 2,840,000

Emplyer's Pension Contribution - K 1,460,000

Overtime Wages (Extra 40% for 180 Hrs) - K 360,000 ( K5000 * 40% * 180 Hrs) (Extra)

Gross Wages (Total) - K 17,860,000

b)

Cost Accounting Entry in Comapny Cost records

Entry No. 1

Basic Wages - Direct Workers    K 13,200,000 Dr.

Group Bonuses - Direct Workers - K 2,840,000 Dr.

Emplyer's Pension Contribution - Direct workers K 1,460,000 Dr.

Overtime Wages - Direct Workers  - K 360,000 Dr.

Basic Wages - Indirect Workers - K 3,760,000 Dr

Group Bonuses - Indirect Workers -    K 710,000 Dr

Emplyer's Pension Contribution - Indirect Workers K 405,000 Dr

Overtime Wages - Indirect Workers -   - K 120,000 Dr

To

Direct Workers wages Payable Account K 17,860,000 Cr.

Indirect Workers Wages Payable Account K 4,995,000 Cr.

(Being Amount Payable to Direct & Indirect Workers for the Month of Sept, 2020)

Entry No. 2

Machine Break-down Cost Overheads K 563,447 Dr.   

Waiting Time Unproductive Cost Overheads K 267,151 Dr

To

Basic Wages - Direct Workers K 625,000 Cr. (K 425,000 + K 200,000)

Group Bonuses - Direct Workers - K 136,469 Cr. (K 91439 + K 45,030)

Emplyer's Pension Contribution - Direct workers K 69.129 Cr. (K 47,008 + K 22,121)

(Being Cost of Unproductive Factory Overheads transferred for Allocations)

Entry No. 3

Overhead - For Overtime wages - for Customer A K 192,000 Dr.

To

Overtime Wages - Direct Workers K 144,000 Cr.

Overtime Wages - Indirect Workers - K 48,000 Cr.

(Being Cost of Extra Overtime Charges paid for specific Customer is transferred so that proper contribution is derived from particular custmer.)

Note: Direct wages for Overtime hrs are assumed to be allocated to particular Customer as part of Regular Cost)

Working Sheet for above Entries

Gross Wages to indirect workers in the month

Basic wages - Total Attendeance - 940 Hrs

Rate Per Hour K4000 (Per Hour)

Basic Wages - K 3,760,000

Group Bonuses - K 710,000

Emplyer's Pension Contribution - K 405,000

Overtime Wages (Extra 40% for 75 Hrs) - K 120,000 ( K4000 * 40% * 75 Hrs) (Extra)

Gross Wages (Total) - K 4,995,000

Extra Overtime Cost of Specific request of particular Customer

i. 40% of 180 Hrs of Direct Workers - 72 Hrs.

Overtime Cost of Each Direct Worker - K5000*40% = K 2,000

Total Overtime Cost of 72 Hrs of Direct Workers = K2,000 * 72 = K 144,000

ii. 40% of 75 Hrs of Indirect Workers - 30 Hrs.

Overtime Cost of Each Indirect Worker - K4000*40% = K 1,600

Total Overtime Cost of 30 Hrs of Indirect Workers = K1,600 * 30 = K 48,000

Total Cost of Overtime wages of Particular Cutstomer for Direct and Indirect Worker -

Direct Worker - K 144,000

Indirect Worker -   K 48,000

Total - K 192,000

iii. Cost of Non-productive time machine Breakdown 85 hours - Total Cost working

Basic Wages Cost - K 5000 * 85 = K 425,000

Group Bonuses - K 2,840,000/2640*85 = K 91,439 (Allocation)

Emplyer's Pension Contribution - K 1,460,000/2640 *85 = K 47,008 (Allocaton)

Total Cost K 563,447  

iv. Waiting for work 40 hours -   Total Cost Working

Basic Wages Cost - K 5000 * 40 = K 200,000

Group Bonuses - K 2,840,000/2640*40 = K 45,030 (Allocation)

Emplyer's Pension Contribution - K 1,460,000/2640 *40 = K 22,121 (Allocaton)

Total Cost K 267,151