Session 3 - Labour Costs

Question 1

What is direct labour?

Answer 1

Wages paid to those who work on a production line or are involved in the ouput of a product or service

Question 2

What are the 3 main type of payment methods for direct labour?

Answer 2

Time Rate - Paid based on basis of time spent at work
Piecework Rate - Agreed sum for each task carried out for each unit of output
Bonus System - Paid a time rate then recieves bonus if output is better than expected

Question 3

What is the difference between overtime payments and overtime premium?

Answer 3

Overtime payments may be £18 per hour instead of the basic £12 per hour, whereas overtime premium will be £6 which is the payment maid on top of the basic rate for overtime.

Overtime payment will be a direct cost of £12 and Overtime premium will be classed as an indirect cost of £6

Question 4

In what exception will overtime premium be classed as a direct cost?

Answer 4

When the customer demands the work to be rushed and completed, full overtime rate will be a direct cost and therefore passed on as a cost to the customer.

Question 5

Is a bonus a direct or indirect cost?

Answer 5

Indirect Cost

Question 6

What is idle time?

Answer 6

Occurs when production stops through no fault of the production-line employees for example, machine breakdown.

Question 7

How are costs treated when there is idle time?

Answer 7

Employees paid under a piecework rate or a bonus system will receive time rate for the period of stoppage such costs are charged as indirect costs

Question 8

What are equivalent units?

Answer 8

Where employees paid on the basis of output and there are work-in-progress goods you will work out the equivalent units. Might be 200 units are 50% done meaning there are 100 completed units

Question 9

What is the double entry for transfer of direct labour costs to production?

Answer 9

Debit - Production
Credit - Wages control Account

Question 10

What is the double entry for transfer of indirect labour costs to production overheads?

Answer 10

Debit - Production overheads
Credit - Wages Control Account

Question 11

What is the double entry for transfer of administration labour costs to non-production overheads?

Answer 11

Debit - Non production overheads
Credit - Wages Control Account

Question 12

Name some methods or recording wages?

Answer 12

Time sheets
Clock cards
Piecework tickets
Job cards

Question 13

Name some indirect costs when talking about labour?

Answer 13

Overtime premium
Production supervisors
Non production employees

Question 14

How to calculate direct labour cost per unit of production?

Answer 14

Direct labour/units

Question 15

What is the double entry for payment of wages

Answer 15

D - Wages Control
C - Bank