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CMA Intermediate · Cost Accounting · Employee Costs

A worker at Kaveri Engineering is paid Rs 50 per hour normally and works 52 hours in a week, of which 40 are normal hours. Overtime is paid at double time. The overtime was required by a customer's special rush job. How much of the week's wages is charged directly to that job as overtime premium, under the usual treatment, if the wages for all 52 hours are Rs 3,200 (40 x 50 + 12 x 100)?

The overtime premium is 12 hours times the extra Rs 50 per hour, which is Rs 600. Because the overtime was worked at a customer's request for a specific job, the premium is charged directly to that job instead of being spread over general overheads.

  1. ARs 600 premium, charged directly to the rush jobCorrect
  2. BRs 600 premium, charged to factory overheads
  3. CRs 1,200 premium, charged directly to the rush job
  4. DRs 1,200 premium, charged to factory overheads

Explanation

Overtime premium is the extra over the normal rate: 12 hours x (Rs 100 - Rs 50) = Rs 600. When overtime is worked at the specific request of a customer, the premium is charged directly to that job. If overtime arises from general pressure of work, the premium goes to overheads. Rs 1,200 wrongly treats the whole overtime pay as premium.

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