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Direct Labor Module 6

This document discusses labor costs and payroll accounting for manufacturers. It covers common wage plans like hourly, piece-rate, and modified plans. It also discusses labor time records, the payroll function, accounting for labor costs including accruals, and special labor cost problems like bonuses, vacation pay, and holidays. The flow of costs from subsidiary records to the general ledger is also summarized.

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Louise Tecson
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20 views

Direct Labor Module 6

This document discusses labor costs and payroll accounting for manufacturers. It covers common wage plans like hourly, piece-rate, and modified plans. It also discusses labor time records, the payroll function, accounting for labor costs including accruals, and special labor cost problems like bonuses, vacation pay, and holidays. The flow of costs from subsidiary records to the general ledger is also summarized.

Uploaded by

Louise Tecson
Copyright
© © 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, TXT or read online on Scribd
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JOB-ORDER:

DIRECT LABOR
MODULE 6
Presented by: Group 7
LO 1: EXPLAIN DIFFERENT WAGE
PLANS
PAYROLL
PAYROLL
ACCOUNTING SYSTEM
COSTS OF A MANUFACTURES

COMMON
LABOR TIME
WAGE PLANS
RECORDS

PAYROLL
FUNCTION
LO 2: ACCOUNT FOR LABOR COSTS AND SPECIAL
PAYROLL COST PROBLEMS

ACCOUNTING
FLOW OF COSTS FROM
FOR LABOR SUBSIDIARY RECORDS
COSTS TO GENERAL LEDGER

PAYMENT OF
EARNINGS TO LABOR COST
EMPLOYEES SUMMARY

PAYROLL SPECIAL LABOR


ACCRUAL COST PROBLEMS
PAYROLL COSTS
DIRECT LABOR
"Touch Labor"
Component of both Prime Cost and
Conversion Cost
Debited to "Work-in-process" account

INDIRECT LABOR
Still related to production but not directly to the creation
of the product or the performance of the specific job
Charged to "Factory Overhead" account
PAYROLL ACCOUNTING SYSTEM
FOR A MANUFACTURER
1. Record the hours worked or quantity of output by
employees in total and by job, process, or department.
2. Analyze the hours worked by employees to determine how
labor time is to be charged.
3. Charge the payroll time to jobs, processes, departments,
and factory overhead.
4. Prepare the payroll.
COMMON WAGE PLANS

HOURLY RATE PLAN


Wage rate based on hours worked by the
employee
Formula: established rate per hour x no. of hours
worked
Disadvantage: does not motivate employee to
achieve higher level of productivity
COMMON WAGE PLANS
PIECE-RATE PLAN
An incentive wage plan
Wage rate based on quantity produced by the worker;
rate "per piece" produced
Formula: quantity of units produced x wage rate "per
piece" finished
Disadvantage: product quality may be sacrificed by
employee for higher earnings
COMMON WAGE PLANS
MODIFIED WAGE PLAN
Combination of hourly rate plan and piece-rate plan
with an established quota
If Quota is Not Attained: minimum hourly rate is applied
If Quota is Exceeded: a bonus is added to the minimum
wage level (e.g., additional rate per piece)
Concept of "Make-up Guarantee"
Also applicable to production work teams
LABOR TIME RECORDS
Source document for allocating the cost of labor to jobs or departments in
the job cost ledger and factory overhead ledger
Reviewed by production supervisor for accuracy
Shows employee's time spent on each job
May be recorded through automated time-keeping technology (e.g.,
magnetic card reading technology)

COMMON INFORMATION PROVIDED:


Employee's name and ID number
List of specific jobs and JOB NUMBER they completed
Hours spent on the jobs
Hourly rate
Total cost of the jobs
Supervisor's approval
EXAMPLE OF LABOR TIME RECORD: WEEKLY
LABOR TIME
RECORDS
Other time-keeping records may
be used by the company, such as
time sheets and time cards, which
may vary on the time period
covered (e.g., weekly, bi-weekly,
semi-monthly, monthly)
The module simply focuses on the
use of labor time records
Regardless, in a job-order costing
system, these records must specify
the JOB NUMBER of the particular
EXAMPLE OF TIME CARD
job performed by the employee.
PAYROLL FUNCTION
A separate department or within the accounting
department
Primary Responsibility: compute employee's salaries and
wages
Uses labor time records to prepare payroll records
Sends the payroll records to the treasurer's department,
which is responsible for making payments to the
employees through check (see employee's earnings
records in payment of earnings to employees)
PAYROLL FUNCTION
ACCOUNTING FOR LABOR COSTS
Labor time records are sent to the payroll/accounting
department on a daily basis
Cost accountants then charge the labor costs to the
appropriate jobs or departments and factory overhead; this
analysis is recorded in a labor cost summary.
The analysis is also recorded in the job cost ledger and the
factory overhead ledger
The accounting department records the earnings of salaried
employees in the factory overhead ledger accounts and on
the labor cost summary.
ACCOUNTING FOR LABOR COSTS
Entry to record payroll:

Payroll/Factory wages xx
SSS Payable xx
Philhealth Payable xx
Pag-IBIG Payable xx
Other employee deductions xx
Wages payable xx
PAYMENT OF EARNINGS TO
EMPLOYEES
The accounting department sends the payroll to the treasurer's office, which
is responsible for making payments to employees
Payments are usually in the form of checks
PAYMENT OF EARNINGS TO
EMPLOYEES

Entry to record payment of earnings:

Wages payable xx
Cash xx
LABOR COST SUMMARY
RECAP:
Hours worked are recorded in a time record
Payroll department enters pay rates and gross
earnings and forwards the reports to accounting
Cost accountants examine the labor time records
and charge the labor costs to the appropriate jobs
or department and to factory overhead; this
analysis is recorded in a labor cost summary.
LABOR COST SUMMARY
LABOR COST SUMMARY
The source document for making general
journal entries.
Labor costs are properly classified into their
respective accounts (e.g., "sales salaries") and
control accounts (i.e., "work in process" and
"factory overhead")
LABOR COST SUMMARY
Entry to record distribution of payroll to appropriate
acocunts:

Work-in-process xx
Factory overhead xx
Sales salaries xx
Administrative salaries xx
Payroll xx
FLOW OF COSTS FROM SUBSIDIARY
RECORDS TO GENERAL LEDGER
PAYROLL ACCRUAL
When the end of the period (i.e., preparation of financial
statements) does not coincide with the ending date for
the payroll period (e.g., weekly, bi-weekly, monthly)
The unpaid wages of the employees should be properly
accrued.

Journal Entry:

Payroll xx
Wages payable xx
PAYROLL ACCRUAL
Sample Problem:

ABC Co. pays their 100 employees on a weekly basis.


The last payroll period is on December 26, which is a
Friday. The employees work for five days a week.

As of Dec. 31, a Wednesday, ABC. prepares its financial


statements. How much is the accrued payroll if ABC Co.
pays its employees P400 per day?
PAYROLL ACCRUAL
SPECIAL LABOR COST PROBLEMS
SHIFT PREMIUMS- additional pay to employees
because of shifts other than regular daytime shifts
EMPLOYEE PENSION - income promised to employees
after they retire
BONUSES - an additional pay granted to employees
when the company earns higher-than-usual profits
VACATION & HOLIDAY PAY
VACATION PAY - paid vacation leave; accrued throughout the year
HOLIDAY PAY - stipulates that certain holidays during the year will be
paid for by the company, but they are non-working days for employees
SPECIAL LABOR COST PROBLEMS
Assuming that the employee is a factory worker, the
journal entry will be:
Work-in-process xx
Factory overhead (bonus) xx
Factory overhead (vacation) xx
Factory overhead (holiday) xx
Payroll xx
Bonus liability xx
Vacation liability xx
Holiday liability xx

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