Vacation and Overtime Pay Paul typically works 40 hours/week at $15/hour regular

Question

Vacation and Overtime Pay

Paul typically works 40 hours/week at $15/hour regular pay and receives four weeks of vacation. This week he worked 50 hours as his employer asked him to work Saturday to take care of the Christmas backlog. Determine the following and answer the five questions below:

1. The amount of vacation to be accrued.

2. The amount of overtime pay Paul would say he has earned.

3 The amount of pay Paul earned.

4. The amount of overtime pay we will determine Paul earned.

5. The account charged for the overtime we paid Paul

Please read the notes for better understanding:

Tangent to the budgeting discussion is how to work with budgeted overtime and vacation pay. In factory accounting we must accrue vacation time for direct laborers. This is done to spread the cost of vacation pay over all of our jobs, otherwise the jobs during the predominant vacation months like December and July would be charged for employees not even working on the job. To accomplish this, we set up an accrued vacation account for each employee based on information supplied by human resources. To determine the amount of the accrual we take the vacation pay and divide it by time worked. For example, if an employee has two weeks’ vacation and earns $500/week we would take the total vacation pay of $1000 and divide it by 50 [52 weeks less the 2 vacation weeks] and accrue $20/week on the credit side of the employee's account. When the employee takes the vacation we debit the account rather than the job so no job is charged for an employee's vacation.

Determining budgeted overtime is different than the method we might normally use to determine overtime pay. From our old payroll days, overtime begins with the 41st hour worked in any seven day period and is compensated at 1.5 times the employee's regular rate. Let’s assume that John earns $10/hour and worked 45 hours this week. In the past we would have determined his pay this way:

Regular pay.........................40 hours x $10/hr. =$400

Overtime........................5 hours x $10/hr. x 1.5 =$75

Total pay...........................................................=$475

Now we must determine it this way:

Regular pay.......................45 hours x $10/hr. =$450

Overtime.......................5 hours x $10/hr. x .5= $25

Total pay........................................................=$475

Note, of course, that in either case the employee earns the same amount of money, but the overtime pay in our new method is based only on the extra .5 in the overtime formula. This is important because scheduled overtime is charged to W.I.P. while unscheduled is charged to factory overhead. Unscheduled usually indicates a problem, while scheduled usually indicates an abundance of orders, a big difference.

Comment on two different answers:

I THINK THE ANSWER BELOW IS NOT CORRECT. HOW DID YOU GET 5? IF THE PERSON WORKS 40 HOURS THEN RECEIVE 4 HOURS OF VACATION. SHOULDN`T BE OVERTIME PAID 1.5 RATE?

Ans. 1 Amount of vacation to be accrued 40*5*$15

3000

Ans. 2 Overtime earned by Paul is $15*10 hours

$150

Ans. 3 Total amount of Pay Paul earned 52 weeks*40*$15+10*$15

$31,350

Ans. 4 The amount of employer will determine 4 weeks*40*15+10*$15

    2550

Ans. 5 Under Salaries & Wages-Overtime Compensation

THE ANSWER BELOW FROM ANOTHER PERSON WHICH IS WRONG TOO

1. The amount of vacation to be accrued = (10 hrs.*15/hrs.)

                                                           =$150

2. The amount of overtime pay Paul would say he has earned =$150.

3 The amount of pay Paul earned = (50hrs *15/hrs.) =$750

Ans. 1 Amount of vacation to be accrued 40*5*$15

3000

Ans. 2 Overtime earned by Paul is $15*10 hours

$150

Ans. 3 Total amount of Pay Paul earned 52 weeks*40*$15+10*$15

$31,350

Ans. 4 The amount of employer will determine 4 weeks*40*15+10*$15

    2550

Ans. 5 Under Salaries & Wages-Overtime Compensation

Explanation / Answer

The amount of vacation to be accrued:

Regular Pay = $15 x 40 hours = $600
So, the accrual for vacation = ($600*2)/50 = $24/Week

Overtime Hours = 10 hours (50 Hours – 40 Regular Hours)
Overtime Pay = $15 x 10 hours x 1.5 = $225

Total amount Paul earned = $600 + $225 = $825

The amount, we must determine:
Regular Pay = $15 x 50 hours = $750
Overtime Hours = 10 hours (50 Hours – 40 Regular Hours)
Overtime Pay = $15 x 10 hours x .5 = $75

Account charged for overtime Pay = $15 x 10 hours x .5 = $75

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