Question

Jan Davis is employed by Wesley Limited. Last week she worked 55 hours assembling one of the company’s products. Wesley’s employees work a 40-hour week and Davis is paid $28 per hour. Employees are paid time and a half for any hours worked in excess of the standard 40 hours. Assume the overtime is the result of an overall increase in demand for all products.

Required:

1. Allocate Davis’s wages for the week between direct labour cost and manufacturing overhead cost.

2. How would your answer to part (1) have changed if the overtime was incurred to meet a rush order for a particular customer?

Answer 1

Req 1.
Total Hours worked			55
Less: Normal hours			40
Overtime hours			15
Overtime wages (28*1.5)			42
Less: Normal wages per hour			28
Overrtime premium per hour			14
Direct Labour cost
Total hours worked			55
Normal wage rate			28
Direct Labour cost			1540
Manufacturing Overheads:
Overtime hours worked			15
Overtime Premium per hour			14
Manufacturing Overheads:			210
Req 2.
However, when the overtime time is done and paid for meeting the rush order of t he customer
Then, in such cases the overtime is due to the request of the customer and overtime premium is also charged from the customer as direct labour cost.
Therefore, in suchc cases there is no manufacturing overheads and Direct labour cost is as under:
Direct Labour cost
Wages for Normal hours (40 hours @ 28)				1120
Wages for Overtime hours (15 hours @ 42)				588
Direct Labour cost				1708