Cost and Management Accounting · Employee Cost and Direct Expenses

Idle Time, Overtime and Their Accounting Treatment

Updated 4 October 2026 · Fact-checked

Idle time is paid time when workers produce nothing; overtime is work beyond normal hours, paid at a premium. Normal idle time is charged to production through overheads. Abnormal idle time goes to Costing Profit and Loss A/c. Overtime premium goes to overheads if normal or general, to the job if requested by the customer.

Understand Idle Time, Overtime and Their Accounting Treatment

Workers are paid for attendance, not only for output. So some wages are paid for time when no work is done. This is idle time. The cost accountant must decide who bears this cost: the product or the profit and loss account.

Normal idle time is unavoidable in routine working. Examples are tea breaks, time to move between jobs, machine setting and normal waiting. Its cost is included in the cost of production. It is treated as a part of factory overheads and absorbed into all products, or sometimes added to the labour rate.

Abnormal idle time is caused by avoidable or unusual events. Examples are power failure, machine breakdown, strike, lockout, fire, flood or lack of materials through poor planning. It should not burden products. Its cost is transferred to Costing Profit and Loss A/c. Idle time due to strike or lockout is also shown here. Note: if idle time is wholly due to a normal cause, it stays in overheads.

Overtime is work beyond normal working hours. Workers are paid a premium, such as double the normal rate. The overtime premium is the extra amount over the normal rate. The normal rate portion for those hours is always wages cost of the job or work done. Only the premium needs special treatment.

The premium is treated by cause. If overtime is due to a general pressure of work, it goes to factory overheads. If it is due to a particular job or at a customer's request, it is charged to that job. If it is due to a delay or fault of a department, it is charged to that department. If it is due to a abnormal cause such as making up for lost time, it goes to Costing Profit and Loss A/c.

Key rules to remember

Idle time cost: Idle time cost = Idle hours × Wage rate per hour; Use the rate the worker is paid for idle hours. Under time rate it is the normal hourly rate.
Normal idle time treatment: Normal idle time cost → Factory overheads (absorbed in production); Debit Factory Overhead Control A/c, credit Wage Control A/c.
Abnormal idle time treatment: Abnormal idle time cost → Costing Profit and Loss A/c; Debit Costing P&L A/c, credit Wage Control A/c. Not charged to products.
Overtime premium: Overtime premium = Overtime hours × Normal rate × (Premium factor − 1); For double rate, premium is 100% of the normal rate. For 1.5 times, it is 50%.
Overtime treatment by cause: General pressure → Overheads; Customer request or specific job → That job; Abnormal cause → Costing P&L A/c; Normal-rate part of overtime hours is always direct wages of the work done.
Piece rate overtime: Overtime premium = Overtime hours × Normal hourly rate × premium %; Under piece rate, compare earnings with time-rate earnings for premium. Follow the data given in the question.

How to solve Idle Time, Overtime and Their Accounting Treatment questions

Use this method for any question on idle time or overtime. The aim is to split total wages into the part that goes to jobs, the part that goes to overheads and the part that goes to Costing P&L.

1Read the data and note total hours paid, hours worked, normal rate and overtime factor.
2Find idle hours: hours paid less hours worked. Split them into normal and abnormal using the causes given.
3Compute idle time cost = idle hours × rate. Keep normal and abnormal separate.
4Compute overtime hours and the premium = hours × normal rate × (factor − 1). Identify the cause of overtime.
5Prepare the wage analysis. Direct wages = hours worked × normal rate. Add the premium to the job only if the customer asked or the job caused it.
6Post the treatment: normal idle time and general overtime premium to overheads; abnormal idle time and abnormal overtime premium to Costing P&L.
7Write the journal entries if asked, then state the final cost of the job or the figure needed.
8Check that total wages debited equals total wages paid.

Quickest way: Three-bucket sort for marks under time pressure

When to use it: Use it for MCQs and for the written answer when the data is short.

MCQ: ask only two questions. Is the cause normal or abnormal? Is overtime general, job-specific or abnormal? The answer is then overheads, job or Costing P&L.
Remember: abnormal items never go to the product. Costing P&L is the home of strikes, breakdowns and lockouts.
Premium only: do not multiply the whole overtime wage by the factor. Multiply hours × rate × (factor − 1).
Written answer: draw a small table with columns Hours, Rate, Amount, Treatment. Marks are given for each line.
End with the journal entries or the overhead and cost figure, and write one line on the reason for treatment.

Common mistakes in Idle Time, Overtime and Their Accounting Treatment

Treating the full overtime wage as premium.
Students see the doubled rate and treat all of it as extra.
Fix: Only the extra over the normal rate is premium. At double rate, half of the overtime pay is normal wages and half is premium.
Charging abnormal idle time to the product.
Students think all wages paid are product cost.
Fix: Send abnormal idle time cost to Costing Profit and Loss A/c, as it is a loss not a cost of production.
Charging overtime premium to the job in every case.
Students link overtime to the job being done at the time.
Fix: Charge the job only when the customer asked or the job caused it. For general pressure of work use overheads.
Treating strike or lockout idle time as normal.
Idle time seems routine because it happens often.
Fix: Strike, lockout, fire and breakdown are abnormal. Put them to Costing P&L unless the question says otherwise.
Using the wrong hours for idle time.
Students mix hours present, hours worked and hours paid.
Fix: Idle hours = hours paid − hours worked on jobs. Write the three figures separately first.

Worked examples

Example 1

A worker is paid ₹80 per hour. In a week he attends for 48 hours. Of these, 40 hours are worked on jobs, 5 hours are normal idle time and 3 hours are abnormal idle time due to power failure. Show the treatment of wages.

Show the solution

Hours paid = 48. Hours worked = 40. Idle = 5 + 3 = 8. Check: 40 + 8 = 48.
Direct wages = 40 × ₹80 = ₹3,200, charged to jobs.
Normal idle time cost = 5 × ₹80 = ₹400, charged to factory overheads.
Abnormal idle time cost = 3 × ₹80 = ₹240, charged to Costing P&L A/c.
Total = ₹3,200 + ₹400 + ₹240 = ₹3,840, which equals 48 × ₹80 = ₹3,840.

Answer: Jobs ₹3,200; factory overheads ₹400; Costing Profit and Loss A/c ₹240. Total wages ₹3,840.

Example 2

A worker's normal rate is ₹100 per hour for 40 hours a week. Overtime is paid at double rate. In a week he works 50 hours, of which 4 overtime hours were at a customer's request for Job X and the remaining 6 overtime hours were due to general pressure of work. Show the treatment of wages.

Show the solution

Normal hours = 40, overtime hours = 10. Total hours = 50.
Normal wages for 40 hours = 40 × ₹100 = ₹4,000.
Overtime at normal rate = 10 × ₹100 = ₹1,000. This is direct wages of work done.
Premium per hour = ₹100 × (2 − 1) = ₹100.
Premium for Job X = 4 × ₹100 = ₹400, charged to Job X as the customer asked.
Premium for general pressure = 6 × ₹100 = ₹600, charged to factory overheads.
Total paid = ₹4,000 + ₹1,000 + ₹400 + ₹600 = ₹6,000. Check: 40 × ₹100 + 10 × ₹200 = ₹4,000 + ₹2,000 = ₹6,000.

Answer: Direct wages ₹5,000 (₹4,000 normal plus ₹1,000 overtime at normal rate). Overtime premium ₹400 to Job X and ₹600 to factory overheads. Total wages ₹6,000.

Exam tips

Always split the answer into jobs, overheads and Costing P&L. Examiners award marks for each head.
Write the reason with each treatment, for example 'power failure is abnormal, so Costing P&L'. One line earns the step mark.
In MCQs, check the cause given in the stem. The words customer request, strike and breakdown decide the answer.
Show the cross-check that total wages debited equals total wages paid. It helps catch arithmetic slips.

Practice questions from Employee Cost and Direct Expenses

Idle Time, Overtime and Their Accounting Treatment in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateIdle Time and Overtime

Idle Time, Overtime and Their Accounting Treatment: frequently asked questions

What is the difference between normal and abnormal idle time?

Normal idle time is unavoidable in routine working, such as breaks and normal waiting. Abnormal idle time arises from avoidable or unusual causes such as power failure, breakdown or strike. Normal goes to overheads. Abnormal goes to Costing Profit and Loss A/c.

How is overtime premium treated in cost accounting?

It depends on the cause. If overtime is due to general pressure of work, the premium goes to factory overheads. If the customer asked for it or one job caused it, charge that job. If it arose from abnormal causes, charge Costing Profit and Loss A/c.

Is the normal wage portion of overtime also treated as overhead?

No. Wages at the normal rate for overtime hours are direct wages of the work done. Only the extra premium is treated by the rules for overtime.

Where is idle time from a strike or lockout shown?

It is abnormal. Its cost is transferred to Costing Profit and Loss A/c and is not added to the cost of products.