JPIA-HAU

 Payroll Department – computes each

COST ACCOUNTING AND employee’s gross earnings, withholding
and deductions, and the net earnings to
CONTROL be paid to the employees. It is carried out
Accounting for Labor
by completing and maintaining payroll
Overview of the Handouts: records, employee’s earning records,
I. Classification for Labor and payroll summaries.
II. Control of Labor Cost
III. Types of Wage Plan
IV. Payroll Deductions III. TYPES OF WAGE PLAN
 Hourly-Rate Plan – establishes a
I. CLASSIFICATION FOR LABOR definite rate per hour for each employee.
1. Direct Labor – represents payroll costs Wage = number of hours worked x rate per hour
that are traceable to individual jobs
worked on during the period.  Piece-Rate Plan – earnings are based
- Direct labor costs are debited to on the quantity of production; workers
the Work in Process account. earn more if they produced more.
Examples: machine operators, painters, Wage = number of units produced x rate per piece
assemblers, factory workers
2. Indirect Labor – cost of work not directly  Modified Wage Plan – combination of
traceable to the production of the product features of hourly-rate plan and piece-
but is still related to the production rate plan.
process.
- Indirect labor costs are charged to IV. PAYROLL DEDUCTIONS
factory overhead.  Employee’s Income Tax
Examples: janitors, production supervisor,  SSS Contribution – the amount
inventory clerks, cost accountant deducted from the employer and
employee’s salary or wage is based on
3. Labor Overhead
gross pay.
 Waiting Time or Idle Time – cost
of non-productive direct labor *Computation for Gross Pay
hours due to a lack of work, Regular Pay xxx
delayed materials due to Overtime Premium xxx
scheduling, machine malfunction, Idle Time xxx
Gross Pay xxx
and machine set-up.
 Make-up Pay – “piecework” rate;  PhilHealth Contribution - the amount
additional pay to minimum wage deducted from the employer and
employees if they produced employee’s salary or wage is based on
more. basic pay.
 Overtime Premium – represents
amount paid when a worker  HDMF Contribution - the amount
deducted from the employer and
works beyond normal working
employee’s salary is equivalent to 3%
hours. basic pay or P100, whichever is lower.
 Shift Premium – extra pay to
work during less desirable ITEM CLASSIFICATION
evening shift (2 p.m. to 10 p.m.) Idle Time Indirect Labor
or night shift (10 p.m. to 6 a.m.) Make-up Pay Indirect Labor
Overtime Premium Direct Labor - if the job accepted
is RUSH
II. CONTROL OF LABOR COST
 Time-keeping Department – their main Overtime Premium Indirect Labor - for the
responsibility is to record the time put in scheduled regular overtime
by the workers for the purpose of
attendance, wage calculation, cost Shift Premium Indirect Labor
Bonuses/Holidays/ Indirect Labor
analysis and apportionment of labor cost
Leave Pay
over various jobs. It is carried out by
completing and maintaining clock cards,
time tickets, and production reports.

ACCTCOSTCON – Accounting for Labor

 JPIA-HAU
Problem 1
On Saturday, a customer brings a rush 1. The amount charged to direct labor is?
order of 8,000 units of Product A. Beta 2. The amount charged to factory overhead is?
Company agrees to produce these units for the
customer on Sunday, to be shipped on Monday. Answers:
70 of the direct workers who earn P100 per hour 1. 46 hours x P150 = P6, 900
worked eight hours on Sunday to accomplish 2. OT Premium (22hrs x 150 x 50%) 1,650
the order of the customer. Beta Company’s Shift Premium (16hrs x 150 x 25%) 600
regular working day are Monday to Saturday. Night Shift Premium (8x150x10%) 120
The company pays Overtime Premium for Charged to FOH P2, 370
Sundays.
Materials cost P5 per unit was used in Problem 3
the order. The factory overhead is applied at 2/3 Employee: Johnson Lang
of direct labor. Position: Factory Worker
Rate: P150 per hour
1. The amount of direct labor charged to the job September 1-15
is? Days worked 13 days
2. If GP rate is 40% based on cost, the unit sales Hours worked 126 hours
price would be?
3. If this is not a rush order, the total billing price September 16-30
would be? Days worked 12 days
Hours worked 121 hours
Answers:
1. 70 workers x 8 hours x P100 x 1.4 = P78, 400 Compute for:
1. Total earnings before withholding taxes for
2. DM (P5 x 8,000 units) P40, 000 Sept. 1-15, 2020
DL P78, 400 2. Net Pay for Sept. 1-15, 2020
OH(78,400 X 2/3) P52,267
TOTAL COST P170, 667 Answers:
Divide by 8,000 1.
UNIT COST P21.33 Direct Labor (126hrs x 150) P18,900
Multiply by 1.4 FOH (OT Premium) (22x150x25%) 825
SALES PRICE P29.86
Employee Deductions -
3. DM (P5 x 8,000 units) P40, 000 SSS Contribution -
DL(70X5X100) P35,000 PhilHelath Contribution -
OH(35,000 X 2/3) P23,333 HDMF Contribution -
TOTAL COST P98, 333 Total earnings before withholding taxes P19,725
Multiply by 1.4
Total Billing Price P137,666.2 2. Tax
On taxable income 16.667 1,250
Problem 2 Excess 3,058 764.5
The following reports pertains to the number of Withholding tax for the Period P2,014.5
hours worked by three workers of Alpha
Company. They work 8 hours per day. The labor Johnson Lang
per hour is P150. Sept. 1-15, 2020
Shift Worker A Worker B Worker C Direct Labor P18,900
6am-2pm 8 8 FOH (OT Premium) 825
2pm-10pm 6 8 8 Total Earnings P19,725
Beyond 4 4 Employee Deductions:
10pm SSS Contribution -
Total 18 16 12 PhilHelath Contribution -
HDMF Contribution -
Worker A and B are receiving 25% shift Withholding taxes 2,014.50 2,014.50
premium during the morning shift only. Net Pay P17,710.50
Company’s policy on overtime is time and a half.

ACCTCOSTCON – Accounting for Labor