PCR Overtime Premiums

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi all!

Well i did my PEV and PCR mocks yesterday and they went ok, although out of the 2 i found PCR the hardest. Could anyone clarify the treatment of overtime 'premiums' im getting quite confused! What are the different ways the examiner could word this, and then how do i tackle the problem? BTW I also agree that Sandy Hood is the best :D

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Overtime premiums are normally treated as overhead. For example, if the labour rate is £6 and the overtime rate is £9, the premium refers to the difference i.e £3 and the £6 is charged as a direct labour cost. Be careful to read the question as sometimes the overtime premium is already included the overhead rate given. If you have a specific question it would be easier to explain. Hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Hi Chris

    Thanks for taking the time to reply :D ! Its the June 2006 paper. On the PCR papers up to that point, the basic hourly rate and the premium had been charged to direct labour but on the June paper he only charges the basic rate of £6 to direct labour. He did not deal with the premium??
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Hi

    On the June 2006 paper the premium is charged to overheads, but the question also tells you that the overheads are charged at £10 per labour hour so the premium is dealt with in that.

    As Chris said you must read the question really carefully to see if you need to deal with premium or it has been dealt with for you.

    Best of luck
    Eva :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Hi Eva!

    So if he says that overtime premium is to be charged to production overheads then you generally assume that it is included in the overhead rate, charing only the basic rate to direct labour cost?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Yes
    That is how I was taught, but the answer is always in the question.

    Eva :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    This sort of question turns up fairly regularly.
    June 2004 1.1 f Alpha and Beta in Newmarket Ltd
      Find the material cost per unit produced
      Find the labour cost per unit produced
      Then charge overheads to each unit produced using the OAR for that product x the number of labour hours

    Dec 2004 Deltas produced by Jorvik 1.3 d
      task c enables you to find the labour cost that is charged to production
      So in the cost of production question you need to use the labour cost, find the material cost and add on 150% of the labour cost to absorb the overhead

    you should not do anything with the overtime premium, it has been charged to overhead account

    June 2005     task 1.1 g Astons and Brumss (similar to Alphas and Betas)

    Dec 2005 task 1.4 b is a marginal cost scenario so fixed overheads are not included in the cost of Exes or Wyes

    June 2006 task 1.1 f the full absorption cost of production of sigmas and thetas
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    What effectively happens is that the overhead control account is collecting all the overhead costs such as rent, insurance of machinery, supervisors' salaries AND the overtime premiums.

    According to the method of absorption these costs are charged to production.
    So if labour hours are used, every hour worked will result in the overhead control account being credited to the value of the OAR and the productionm department WIP being debited the same amount.

    The process is the same if the absorption rate is a % of labour cost. For example a 150% rate would charge £1.50 for every £1.00 of labour cost.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:PCR Overtime Premiums

    Thanks all! :D Not long to wait now! Im getting so nervous now! :shock:

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