Urgent help needed - Unit 6 ECR - calculating direct labour costs

phunkyphantom22

Hi!

I am sitting my actual unit 6 skills test on Tues and have been working on a practice paper, but am getting stuck with this question.

Labour cost and activity data

Dept A Basic rate £7.80 Basic hours worked 19 Overtime hours worked 6
Dept B Basic rate £10.65 Basic hours worked 12

Overtime paid at basic + 25%. Overtime classified as part of production overhead.

Opening work in progress stock Nil
Output to Dept C 600kg
Closing work in progress stock 200kg

Degree of completion of closing work in progress stock:
Direct materials 100%
Direct labour 50%

No losses occured.

Calculate the following:

a) Total direct labour cost incurred
b) Equivalent kgs produced
c) Direct labour cost per kg of equivalent finished production.

a) 7.80 * 18 = 140.40. 10.65 * 12 = 127.80. Total = 268.20.
I did not include overtime as this is indirect, correct??

I am quite stuck on how to work out b) and c) - can someone help?

Thanks - much appreciated! :-)

CathG

Ok, I'm not 100% sure, but as nobody else has posted an answer here goes...

b) EUs produced - you should lay it out in tabular form - perhaps as I go along it'll come back to you.

Already completed is 600kg and you've got 200kg WIP - all materials in use, but only half the labour so you only have 100kg completed equivalents, totalling 700kg to be divided by the labour hours for the answer to (c) - (taking in account only 100kg of the last 200kg has been worked on). Does that sound right?

If the question was Direct material cost - then all 800kg would have been divided.

Good luck Tuesday - I've got mine then as well.:thumbup:

CathG

(taking in account only 100kg of the last 200kg has been worked on).

That's actually wrong - it's because the whole 200kg has been worked on - but it's only 50% finished.

This has been good revision for me as well!

We could do with someone like Sandy looking at this question.
:thumbup:

phunkyphantom22

Blooming confusing isn't it! Thanks for your help though - I can see what you are getting at :-)

lessci

cathg wrote: »

(taking in account only 100kg of the last 200kg has been worked on).

That's actually wrong - it's because the whole 200kg has been worked on - but it's only 50% finished.

This has been good revision for me as well!

We could do with someone like Sandy looking at this question.
:thumbup:

With Equivalent Units the thing to remember is 50% of 100 is the same as 100% of 50. so what Cath said about the kgs is correct the WIP kgs are 100% complete in materials and 50% complete in labour OR 50% complete in materials and 100% complete in labour (I think!!!)

SandyHood

Labour cost and activity data

Dept A Basic rate £7.80 Basic hours worked 19 Overtime hours worked 6
Dept B Basic rate £10.65 Basic hours worked 12

Overtime paid at basic + 25%. Overtime classified as part of production overhead.

Opening work in progress stock Nil
Output to Dept C 600kg
Closing work in progress stock 200kg

Degree of completion of closing work in progress stock:
Direct materials 100%
Direct labour 50%

No losses occured.

Calculate the following:

a) Total direct labour cost incurred
b) Equivalent kgs produced
c) Direct labour cost per kg of equivalent finished production.

An interesting question with an ambiguity
AssumptionDepartment A 19 hours PLUS 6 hours = Total hours 25

So direct labour cost is:

• Dept A 25 hours x £7.80 = £195.00
• Dept B 12 hours x £10.65 = £127.80
• Total labour cost...............£322.80

The 6 hours overtime premium is not a direct cost.

SandyHood

Equivalent units produced

Equivalent units produced

Opening work in progress stock Nil
Output to Dept C 600kg
Closing work in progress stock 200kg

Degree of completion of closing work in progress stock:
Direct materials 100%
Direct labour 50%

• 600 x 100% = ...........600 kg
• 200 kg x 50% = ........100 kgs
• Total equivalent units 700 kgs

SandyHood

Direct labour cost per kg of equivalent finished production.

Direct labour cost per kg of equivalent finished production

• Total labour cost...............£322.80
• Total equivalent units........ 700 kgs

Direct labour cost per kg of equivalent finished production £0.4611 per kg

phunkyphantom22

Thanks for that Sandy. :-)

I now understand the equivalent units produced and direct labour cost per kg of equivalent finished production, but still a little stuck on direct labour cost.

Apologies, I meant 7.80 * 19 (not 18) = 140.40 in my calculation. What I don't understand is the info states "overtime classified as part of production overhead" - I thought overheads are an indirect cost and therefore would not be part of the direct labour cost?

SandyHood

It is vital that you read the question
Overtime can be Indirect (production overhead) at one business and Direct at another.
It is not always the same.
Dec 07
Overtime premiums paid are included in the direct labour cost.
June 07
Overtime premium is recorded in a sepatate column on a template
Dec 06
Overtime premiums paid are included as part of direct labour cost.
June 06
Overtime premium is recorded in a sepatate column on a template
Dec 05
Overtime premiums paid are included as part of direct labour cost.
June 05
Overtime premiums paid are included as part of direct labour costs.
Dec 04
Journal entries on a template
June 04
No mention of overtime
Dec 03
Direct labour overtime payments are included in direct costs.

phunkyphantom22

Ok.....so how are we meant to know?

This one stated "overtime classified as part of production overhead", therefore I did not include it as I thought overheads were indirect. There was nothing else in the question to indicate otherwise...... am I just being stupid here? :-)

SandyHood

When it says

"overtime classified as part of production overhead",

You should multiply EVERY direct hour by the basic rate to find the DIrect Labour cost
and multiply the overtime hours by the extra bit (overtime premium) to get the amount to charge to production overhead


When it says

Overtime premiums paid are included in the direct labour cost

Then do the same sums but add them together to get the total direct labour cost