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

Ravi Auto Components pays Rs 20 per hour for a 40-hour week of 8 hours a day over 5 days. Overtime beyond 8 hours a day is paid at double rate. In a week a worker worked 8 hours on four days and 12 hours on one day, 4 of which are overtime, because of a customer's urgent order. Overtime premium is charged to the specific job. What amount is charged as overtime premium to the job, and what total wages does the worker earn?

The overtime premium is Rs 80 and total wages are Rs 960. Eight hours of regular pay on all hours gives Rs 800, overtime hours are paid Rs 160 at double rate, and only the extra Rs 20 per overtime hour is premium.

  1. ARs 80 premium; Rs 960 totalCorrect
  2. BRs 160 premium; Rs 960 total
  3. CRs 80 premium; Rs 880 total
  4. DRs 160 premium; Rs 1,040 total

Explanation

Total hours = 32 + 12 = 44. Normal pay = 40 x 20 = Rs 800 plus 4 overtime hours at Rs 40 = Rs 160, giving Rs 960. The premium is the extra over normal rate: 4 x 20 = Rs 80. Rs 160 is the full overtime pay, wrongly taken as premium.

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