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Additional Reading - Labour - 2024

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7 views

Additional Reading - Labour - 2024

Uploaded by

223081640
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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Additional reading (source: http://www.accountingformanagement.

org/treatment-of-idle-time-overtime-
and-fringe-benefit-costs/).

Treatment of idle time:


Idle time means the amount of time the workers remain idle in a normal working day. The idle time is
usually caused by a sudden fault in a machine or equipment, power failure, lack of orders for the product,
inefficient work scheduling, defective materials and/or shortage of raw materials etc. The cost associated
with idle time is treated as indirect labour cost and should, therefore, be included in manufacturing
overhead costs. For example, the normal weekly working hours of a worker are 48 and he is paid @ R8 per
hour. If he remains idle for 6 hours due to power failure, then the cost of 42 hours would be treated as
direct labour cost and the cost of 6 hours (idle time) would be treated as indirect labour cost and included
in the manufacturing overhead cost.

Direct labour (42 hours × R8) R336


Manufacturing overhead (6 hours × R8) R48 Idle time
——
Total cost R384
——
Treatment of overtime premium:
Overtime premium is the amount that is paid, for the overtime worked, in excess of the normal wage rate.
Like idle time, overtime premium is also treated as an indirect labour cost and included in manufacturing
overhead costs. For example, a worker normally works for 48 hours per week @ R8 per hour. In a particular
week, if he works for 52 hours and the company pays him R12 for every hour worked in excess of 48 hours,
the allocation of the labour cost of the worker would be made as follows:

R416
Direct labour (52 hours × R8)
Manufacturing overhead (4 hours × R4) R16 Overtime premium
——
Total cost R432
——
The amount of R16 is an overtime premium and is a part of the manufacturing overhead cost.

Treatment of labour fringe benefits:


Fringe benefits are benefits that employers provide to employees in addition to normal salaries or wages.
Examples of fringe benefits are hospitalization, insurance programs, retirement plans, paid holidays and
stock options etc. Most companies treat labour fringe benefits as indirect labour and, therefore, include
this in the manufacturing overhead costs.

The above information has been summarized below:

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