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CA Intermediate · Cost and Management Accounting · Employee Cost and Direct Expenses

Kapoor Textiles employs a worker on a 48-hour week at Rs. 50 per hour. Overtime beyond 48 hours is paid at double rate. In a week the worker works 56 hours, and 4 of the overtime hours were due to a customer's urgent order, the rest due to a breakdown-related backlog of the factory. Overtime premium is charged to the specific job only for urgent customer work and otherwise to factory overheads. What amount is charged to factory overheads for the week?

Rs. 200 is charged to factory overheads. Of the 8 overtime hours, 4 are due to the factory backlog. The premium is the extra Rs. 50 per hour over the normal rate, so 4 times Rs. 50 equals Rs. 200. Ordinary wages for all hours are charged to the jobs.

  1. ARs. 400
  2. BRs. 200Correct
  3. CRs. 800
  4. DRs. 600

Explanation

Overtime hours = 56 - 48 = 8; urgent = 4, others = 4. Premium per hour = Rs. 50 (the extra over normal rate). Premium on 4 backlog hours = 4 x 50 = Rs. 200 to factory overheads. The normal wages of all 56 hours go to jobs. Rs. 400 is the premium on all 8 hours, wrongly charged to overheads.

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