pcr june 06 1.1 e

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joerd84
joerd84 Registered Posts: 56 Regular contributor ⭐
Hello

Can anyone tell me on this question why they dont calculate the overtime rate at £9, instead at £6. I know it says that the overtime premium is charged to production overheads, but even on the Total absorption cost for part (f) it doesnt seem to include the £9. Any help would be great.

Thanks

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    Bullet point 4 on the labour data states:

    Any overtime premium is charged to production overheads rather than to the cost of
    direct labour.

    The question says:

    (e) cost of direct labour budget

    The examiner wants to be able to see which candidates understand how to apply overtime premium

    So he will reward the candidate who recognises that it is not a direct labour cost


    For many candidates this would have been something they knew from their intermediate studies on ECR, so it was an easy mark.

    Recognising the accounting treatment of production overhead is also something that PCR covers although it has been assessed at intermediate already.

    Overtime premium (along with factory rent and the other production overheads) is debited (charged) to production overhead control
    The production overhead that is then charged as part of the total absorption cost of production is a credit entry in the production overhead control account and debited to the appropriate production account - probably WIP

    So this question doesn't ask you to show the overtime premium at all as it is not interested in that part of the accounting system
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • Terdoo
    Terdoo Registered Posts: 144 Dedicated contributor 🦉
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    Re premium 50%

    Does this mean that £6.00 is the premium rate instead of £9.00?
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    No
    £6 is the rate
    £3 is the premium
    the payroll dept will pay this person £9 per hour
    we will charge production at £6 per hour and the overtime premium is debited to the production overhead account
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • joerd84
    joerd84 Registered Posts: 56 Regular contributor ⭐
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    thanks a lot
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