pcr june 06 1.1 e

joerd84

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

SandyHood

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

Terdoo

Re premium 50%

Does this mean that £6.00 is the premium rate instead of £9.00?

SandyHood

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

joerd84

thanks a lot