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Elements of Cost - Direct Labor

Direct labor refers to employees who work directly on manufacturing products. Tips to lower direct labor costs include reviewing compensation, reducing turnover, cross-training employees, and converting salaries to commissions. Indirect labor includes support workers who enable production but do not directly contribute. Payroll procedures include transferring hours from timecards to registers, computing earnings, making deductions, and paying net payroll through bank accounts. Labor costs are allocated between direct labor charged to work in process and indirect labor charged to manufacturing overhead.

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178 views

Elements of Cost - Direct Labor

Direct labor refers to employees who work directly on manufacturing products. Tips to lower direct labor costs include reviewing compensation, reducing turnover, cross-training employees, and converting salaries to commissions. Indirect labor includes support workers who enable production but do not directly contribute. Payroll procedures include transferring hours from timecards to registers, computing earnings, making deductions, and paying net payroll through bank accounts. Labor costs are allocated between direct labor charged to work in process and indirect labor charged to manufacturing overhead.

Uploaded by

hae1234
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Direct Labor

Direct labor is the amount of payroll expense related to


specific projects or product manufacturing
Controlling Costs

 Tips to Lower Direct Labor Costs


Review Levels of Compensation. ...
Reduce Employee Turnover. ...
Cross-Train Employees. ...
Share Jobs Between Employees. ...
Convert Fixed Salaries and Wages Into Commissions or Fees.
...
Reduce Perquisites (“Perqs”) ...
Eliminate Redundancy Between Department
Nature of direct labor

 Direct labor refers to the employees and temporary staff


who work directly on a manufacturer's products
Indirect Labor Costs

Indirect labor cost describes wages paid to workers that


perform tasks that do not directly contribute to the
production of goods or performance of services, such as
support workers who help enable others to produce
goods.
Payroll Sheet

 A payroll sheet is used to document the days that an


individual has been present to work and the equivalent
monetary value of the services that the employee has
rendered in a particular time period.
Payroll Procedures

The number of hours worked each day of employees


under the hourly rate is transferred from the time card to
the payroll register (sometimes called payroll sheet).
After all the hours worked by each employee have been
entered into the payroll register, regular earnings, overtime
premium earnings and total earnings are computed and
recorded
Weekly Factory Payroll Register

After computing the gross earnings (that is the total


amount earned before any deductions) of each
employee, appropriate deductions are made and
entered in the proper columns and the net pay of each
employee is determined.
Semimonthly Factory Payroll

A separate semimonthly payroll register is used to record


salaries of some factory supervisors and managers.
These employees earn fixed monthly salaries payable in
two installments on the fifteenth and the last day of the
months.
Deductions from Employees’ Earnings

Income Taxes. The employer must withhold income taxes


from the employees’ salaries and wages.
The amount withheld is in accordance issued by the
Bureau of Internal Revenue (BIR) and shall be remitted
monthly to the BIR. The employer act as a collection agent
for the government.
Social Security System Contributions. Employer must deduct a
certain amount from the employees salaries during the month in
accordance with the table issued by the Social Security System.
The amount deducted is for the protection of the employees
and their families in cases of disability, sickness, old age and
death.
The employer must also pay with respect to the covered
employee his corresponding share in accordance with the
same table.
Remittance of the amount deducted is made monthly to the
SSS.
Phil. Health Insurance Corporation
(Phil Health)
An amount representing health insurance is automatically
deduction from employees who are members of SSS.
The objective of the deduction is to provide the covered
employee adequate health insurance.
Employer and employee pay equal amounts monthly
based on employees salary and in accordance with a
table issued by the Philippine Health Insurance
Corporation.
The employer remits monthly contributions to the SSS
Pag-Ibig Fund

A member-employee is deducted a certain percentage of


his monthly basic salary.
The employer also contributes an equivalent share for
each covered employee, which is remitted monthly
together with the employee’s share.
Employer’s Contributions

The employer has a corresponding share in the


contributions to SSS, Philippine Health Insurance, and Pag-
Ibig Fund.
In addition, the employer is obligated to contribute to the
Employee’s Compensation Commission (ECC) for its
covered employee’s compensation and government
insurance.
These conributions of the employer are expenses of the
company.
Paying the Payroll

In practice, companies uses a special bank account for payroll payments.


1. The payroll clerk prepares a voucher for the net amount of the payroll
2. which is forwarded to the voucher clerk, who records it in the voucher
register.
3. The voucher then goes to the treasurer of the cash department, who
issues a check on the regular bank account for the amount of the
voucher and enters it into the check register.
CHARGING LABOR COSTS INTO
PRODUCTION
Direct labor costs are to be allocated between direct labor and indirect labor
costs.
Direct labor costs are charged to Work In Process, while indirect labor costs are
charged to Manufacturing Overhead Control account.
Assignment #1

Jose Santos worked 46 hours in one week at a rate of P45 an hour. He is paid
one and a half times the regular rate for hours worked in excess of P40.
What is the gross earnings of Jose Santos?
a. P2,205
b. P2,070
c. P2,340
d. P1,800
Assignment#2

The data below pertains to the earnings of Pedro Castro for the week ended
June 16
Hours and rate 42 hours worked at P40 an hour
Earnings to date P14
Overtime rate One and a half times the regular rate for
hours worked in excess of 40 hours
Withholding tax 3% of gross earnings
SSS contributions 2% of gross earnings
Phil. Health contributions 1% of gross earnings
Pag-Ibig contributions 1% of gross earnings
 What is the net pay for Pedro Castro for the week?
a. P1,599.60
b. P13,879.60
c. P1,629.60
d. P13,580
Assignment#3

Mike G, a production employee is paid P180 per hour for a regular work of 40
hours. During the week ended March 23, Mike G worked 50 hours and earned
time and a half for overtime hours.
What is the amount that should be charged to Work in Process account if the
overtime premium is charged to production worked on during the overtime
hours?
a. P9,000
b. P9,900
c. P8,900
d. P9,500
Assignment#4

Using the same data in No. 3, what is the amount that should be charged to
Work in Process account, if the overtime premium is charged to manufacturing
overhead?
a. P9,000
b. P9,900
c. P 8,900
d. P 9,500
Assignment#5

Four factory workers and a supervisor make a team in the Machining Department.
The supervisor earns P100 per hour, and the combined hourly charge of the four
workers is P320. Each employee is entitled to a 2-week paid vacation and a bonus
equal to 4 weeks’ wages each year. Vacation pay and bonuses are treated as
indirect costs and are accrued over the 50 week work year. A provision in the union
contract does not allow these employees to work in excess of 40 hours per week.
What is the amount to be charged to Manufacturing Overhead Control account?
a. P1,344
b. P2,016
c. P20,000
d. P6,720
Assignment#6

Using the same data in no. 5, what is the estimated liability for bonus?
a. P0
b. P1,344
c. P6,720
d. P20,160
Assignment#7

Using the same data in no. 5, what is the estimated liability for vacation pay?
a. P0
b. P20,160
c. P1.344
d. P720
e. P672
Assignment#8

The pay stub of Jing Guerrero, employee No. 106 who works on the production
line, showed the following for a 2-week pay period:
Gross earnings P4,560
Income tax withheld 611.68
SSS premiums withheld 342
Phil. Health premiums withheld 112.16
Pag-ibig premiums withheld 222
Union dues 44
Jing Guerrero works a regular 40 hours week and is paid P48 per hour regular time, and
time and a half for overtime.
She is also paid an additional P1,092.80 in benefits for the 2 week pay period with regard
to the employer’s contribution to the company’s SSS and Phil. Health premiums.
What is the amount to be charged to Work in Process for employee no. 106 for the 2-week
period, assuming that any overtime work is not traceable to a particular Job order?
a. P6,480
b. P8,880
c. P3,840
d. P4,320

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