43 Labor cost, overtime, and idle time, David Letterman works in the production

Question

43 Labor cost, overtime, and idle time, David Letterman works in the production department of Northeast Plastics (NEP) as a machine operator. David, a long-time employee of NEP, is paid on an hourly basis at a rate of $24 per hour. David works five 8-hour shifts per week Monday-Friday (40 hours). Any time David works over and above these 40 hours is considered overtime for which he is paid at a rate of time and a half ($36 per hour). If the overtime falls on weekends, David is paid at a rate of double time ($48 per hour). David is also paid an additional $24 per hour for any holidays worked, even if it is part of his regular 40 hours. David is paid his regular wages even if the machines are down (not operating) due to regular ma- chine maintenance, slow order periods, or unexpected mechanical problems. These hours are considered "idle time." During December David worked the following hours: Hours worked including machine downtime 50 Week 1 Week 2 Week 3 Week 4 Machine downtime 6.0 2.0 4.0 3.5 46 45 Included in the total hours worked are two company holidays (Christmas Eve and Christmas Day) during Week 4. All overtime worked by David was Monday-Friday, except for the hours worked in Week 3; all of the Week 3 overtime hours were worked on a Saturday.

Explanation / Answer

1 (a) Total cost of hours worked at regular rates 50 hours × $24 per hour $        1,200 44 hours × $24 per hour            1,056 46 hours × $24 per hour            1,104 45 hours × $24 per hour            1,080 $        4,440 Minus idle time (6.0 hours × $24 per hour) $           144 (2.0 hours × $24 per hour)                  48 (4.0 hours × $24 per hour)                  96 (3.5 hours × $24 per hour)                  84 Total idle time $           372 Direct manufacturing labor costs $        4,068 (b) Idle time = 15.5 hours × $24 per hour = $           372 (c ) Overtime and holiday premium. Week 1: Overtime (50 – 40) hours × Premium, $12 per hour $           120 Week 2: Overtime (44 – 40) hours × Premium, $12 per hour                  48 Week 3: Overtime (46 – 40) hours × Premium, $24 per hour                144 Week 4: Overtime (45 – 40) hours × Premium, $12 per hour                  60 Week 4: Holiday 8 hours × 2 days × Premium, $24 per hour                384 Total overtime and holiday premium $           756 (d) Total earnings in December Direct manufacturing labor costs $        4,068 Idle time                372 Overtime and holiday premium                756 Total earnings $        5,196 2 Idle time is results of machine maintenance or slow oder processing and hence indirect in nature and can not be traced back to a job. Also overtime premium can not be traced back to any particular job and hence indirect manufacturing overhead If its tarceable to a job, then charged directly to the job and direct labor for that job

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