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ACCA Applied Knowledge · Management Accounting · Accounting for material, labour and overheads

Employees at Norwood Ltd are paid $12 per hour for a basic 38-hour week. Overtime is paid at time-and-a-half. In one week, Sara works 46 hours on a specific customer job at the customer's urgent request, so the overtime is attributable to that job. What is the amount of overtime premium to be charged directly to that job?

The premium charged directly to the job is $48. Sara worked 8 overtime hours, and the premium element of time-and-a-half is half the $12 basic rate, or $6 per hour. Because the customer's urgent request caused the overtime, the premium is a direct cost of that job.

  1. A$48Correct
  2. B$144
  3. C$192
  4. D$0 because it is overhead

Explanation

Overtime hours = 46 - 38 = 8. The premium is the extra 0.5 x $12 = $6 per hour, so 8 x $6 = $48. The premium is charged directly because the overtime was caused by that job. $144 would be the premium plus basic overtime pay for 8 hours (8 x $18). $192 is 8 x $24, which wrongly assumes double time.

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