5 - Accounting For Labor

ACCOUNTING FOR LABOR
CLASSIFICATION FOR LABOR

1. Direct labor – labor identified with particular products which is considered feasible to be
measured and charged to specific production order cost sheet.
2. Indirect labor
a. Labor identified with particular products but which is not considered feasible to measure
and charge to a specific production order.
b. Labor expected for the benefit of production in general and not identified with particular
products.
3. Labor overhead
a. Waiting time or idle time – cost of non-productive hours of direct labor caused by lack of
work, waiting for materials and delays from scheduling, and machine breakdown. If the idle
time is normal for the production and cannot be avoided, time should be charged to factory
overhead control. Abnormal items should be charged to losses.
Let us assume an employee spent 36 hours on Job 101 was idle for 4 hours during the week.
The employee’s rate is P50 per hour for a 40-hour week. The following entry should be made
to record the total wages:
Work in process - Job 101 1,800
Factory overhead control - Idle time 200
Accrued payroll 2,000
b. Make-up pay – difference between earnings regularly earned on piecework and earnings at
guaranteed hourly and weekly rates.
Let us assume an employee is paid P15 per piece produced and during the week, she produces
80 pieces. If the guaranteed weekly pay is P1,500, then the difference between P1,500 and
P1,200 (actual pay) is charged to factory overhead control.
Work in process - Job 101 1,200
Factory overhead control - Make-up pay 300
c. Overtime premium – represents amount paid, in excess of regular rate, to employees working
in excess of 8 hours in a day, or working during holidays or their rest day. Overtime
premium represents the overtime hours multiplied by the premium rate.
Let us assume an employee worked 45 hours on Job 101. The employee’s rate is P50 per hour
for a 40-hour week. If the employee is paid 50% overtime premium. The following entry
should be made to record the total wages:
Work in process 2,250
Factory overhead control 125
If overtime results from the requirements of a specific job and not from random scheduling
the overtime premium should be charged to the specific job that caused overtime. For
example, if the overtime worked was caused by a rush order and the customer has agreed to
pay for the special service, then the premium will be debited to work in process instead of
factory overhead control.
d. Shift premium – extra pay to work during the less desirable evening shift (2pm to 10pm) or
night shift (10pm to 6am). This shift premium, or shift differential, should be charged to
factory overhead.
Assume an employee is assigned to night shift and is paid a shift premium of P20 per hour,
the entry for her pay will be:
Work in process 2,000
Factory overhead control 800
e. Employer’s payroll taxes – amounts remitted to different government agencies for SSS
premiums, PhilHealth contributions, and Pag-ibig contributions.
GROSS EARNINGS OF EMPLOYEES
1. Wages – gross earnings of an employee who is paid by the hour for only the actual hours
worked.
2. Salaries – gross earnings of an employee who is paid a flat amount per week or month
regardless of the hours worked in a period.
3. Gross earnings – the compensation of an employee and includes regular pay and overtime
premiums.
PAYROLL DEDUCTIONS
1. Employee’s income tax - the amount of tax to be withheld each period.
2. Social Security System premiums - levied against both the employer and the employee.
3. Pag-ibig Contributions - levied against both the employer and the employee.
4. PhilHealth Contributions - levied against both the employer and the employee.
ILLUSTRATION
1. Alonzo Factory provides for an incentive scheme for its factory workers which features a
combined minimum guaranteed wages and a piece rate. Each work is paid P11.25 per piece with a
minimum guaranteed wage of P875 per week. Production report for the week shows the following:
Employee Name Units Produced
Ashura 67 Required: Compute the portion of the weekly payroll that should
Denjiro 78 be charged to factory overhead.
Inu 80
Kiku 82
Neko 72
Raizo 75
2. F & B Company pays time and a half for hours in excess of 40 hours per week. An individual is
paid P24 per hour and worked 44 hours a week. The weekly earnings of the employee will amount
to? _________

5 - Accounting For Labor

Uploaded by

Copyright:

Available Formats

5 - Accounting For Labor

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

5 - Accounting For Labor

Uploaded by

Copyright:

Available Formats

ACCOUNTING FOR LABOR

CLASSIFICATION FOR LABOR

You might also like