01/10/2024
L ABOR COST
ACCOUNTING Direct labor Indirect Labor
FOR LABOR Wages paid to the production
workers who work directly on
Price paid for using
human resources or
wages and salaries of
employees or workers who are
required for the
the product manufactured or compensation paid to manufacturing process but
which are allocated directly to
the product and debited to employees or workers who do not work directly on
the units being manufactured
Work in process
and debited to Factory
Overhead Control
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ACCOUNTING SYSTEM FOR L ABOR INCLUDES: WAGES PLANS
Recording the number of hours used in total and by job.
Hourly rate plan
Recording the quantity produced by the workers.
Analyzing the hours used by employees to determine how Piece-rate plan
time is to be charged.
Allocation of payroll costs to jobs and factory overhead
accounts. Modified wage plan
Preparation of payroll, including computation and recording
the employees 'gross earnings , deductions and net earnings.
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CONTROLLING L ABOR COST CONTROLLING L ABOR COST
TIMEKEEPING AND PAYROLL TIMEKEEPING AND PAYROLL
DEPARTMENT DEPARTMENT
Responsible for maintaining labor
records
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CONTROLLING L ABOR COST CONTROLLING L ABOR COST
TIMEKEEPING AND PAYROLL
DEPARTMENT
TIMEKEEPING AND PAYROLL Timekeeping functions
DEPARTMENT
involves two major
procedures
a. accumulation of the total number of hours
Accounts for the time spent by the worked by each employee to compute
employees in the factory their earnings.
b. determination on how the labor hours was
spent
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TIMEKEEPING AND PAYROLL PROCEDURES
Forms and records
maintained Gather the data on how many hours have been worked by
each hourly rate employee from the time card or clock card.
The hours worked should be recorded in the time ticket or
TIMEKEEPING PAYROLL individual production report. The time ticket shows the
employee’s starting and stopping time on each job, rate
Clock cards Payroll records of pay and the amount of earnings. Individual production
Time tickets Employee’s earning records report is used if piece rate is used.
Production reports Payroll summaries
Time ticket or individual production report are sent to the
payroll department on a daily basis and the pay rates and
gross earnings are entered, then forwarded to the
accounting department.
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TIMEKEEPING AND PAYROLL PROCEDURES PRO-FORMA JOURNAL ENTRIES
• Advances to Employees
The data gathered from the time cards or clock cards are
transferred to payroll register or payroll sheet.
In preparing the payroll, certain mandated government • Payment of salaries and wages:
contributions need to be deducted from the gross pay of
each employee. These deductions include the following:
• SSS contributions
• Withholding Taxes
• PhilHealth Contributions
• PAG-IBIG Contributions
• Advances to Employees
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CHARGING LABOR COSTS INTO PRODUCTION CHARGING LABOR COSTS INTO PRODUCTION
Time tickets or job time cards A labor cost summary is Overtime should be shown
show how time was used on prepared from the time separately from employee’s
specific job. It facilitates the tickets, which is used as regular time. Overtime
allocation of labor costs into the source in making distribution depends upon the
direct labor and indirect labor. journal entry to distribute conditions creating the need for Pro forma entry to
payroll account. overtime hours – may be charged distribute labor costs:
to work in process or factory
overhead control
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LABOR OVERHEAD ILLUSTRATIVE EXAMPLE
ABC Corp. pays its workers at the rate of P 200 per day plus P21 for every unit produced
FOC FOC or WIP FOC or WIP FOC FOC in excess of 10 units during each working day. The production report for two days is
shown below. Compute the amount to be paid to each worker.
Shift premium Employer’s
Waiting time Make- Overtime or shift payroll taxes or
or idle time up pay Premium differential employer’s
share
piecework
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ILLUSTRATIVE EXAMPLE
SOLUTION (JOURNAL ENTRIES)
SOLUTION
• To record the payment to workers:
Payroll 2,168.00
Cash 2,168.00
• To record the charging of labor to production:
Work in Process 2,108.00
Factory Overhead Control 60.00
Payroll 2,168.00
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ILLUSTRATIVE PROBLEM ILLUSTRATIVE PROBLEM
Ms. Joy, a punch press operator in a metal fabricating plant is randomly Jose Santos worked 46 hours in one week at a rate of P 45 an
assigned to various jobs. The straight-time wage rate is P 40 per hour with hour. He is paid one and a half times the regular rate for hours
time and one-half for time over 40 hours per week. How much of these worked in excess of 40. What is the gross earnings of Jose
earnings should be charged to Manufacturing Overhead Control account if
Santos?
47 hours are worked in one week?
Answer: [(40 hrs. x P45) + (6 hrs. x (P45 x 1.5))] Answer: P2,205
Answer: 7 hours x (P40x1.5) = P420
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ILLUSTRATIVE PROBLEM
LOGO
Mike G., a production employee is paid P 180 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
Thank you
production worked during the overtime hours?
Answer: [(P40 hrs. x P180) + (10 hrs. x (P180 x 1.5))]
Answer: P9,900
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