1. Direct labor is that part of factory wages earned by employees who perform work on the item manufactured; it is charged directly to the job or product. Indirect labor is that part of factory wages earned by employees engaged in the manufacturing process who do not work directly on the units being manufactured; it cannot be charged to any particularjob or product but must be treated as overhead.
2. a. An advantage of the hourly rate plan is that there is no temptation on the part of the workers to speed up their work at the sacrifice of quality or perfection. On the other hand, it provides no incentive for increased production.
b. The principal advantage of the piece-rate plan is that it provides an incentive for increasedproduction. The more units produced under such a plan, the higher the employee's earnings. However, there may be a temptation to strive for a high level of output at a sacrifice of quality. A greater degree of supervision is required and more detailed records must be maintained when a piece-rate plan is used.
3. A modified wage plan combines certain features of both the hourly rate and piece-rate plans.Employees are paid a regular hourly wage plus an additional incentive rate if established quotas are exceeded.
4. In production work teams, output is dependent upon contributions made by all members of the work crew. If the number of pieces finished depends on a group effort, then a single incentive plan for the group may be appropriate.
5. The payroll department is responsible for determiningthe amount of each employee’s:
a. gross earnings.
b. withholdings and deductions.
c. net pay.
The payroll department should also provide the accounting department with the information necessary to allocate the labor costs.
6. The labor-time record shows the employee’s time spent on each job, as well as the time spent on indirect labor activities. It is the source document forallocating the cost of labor to jobs or departments in the job cost ledger and the factory overhead ledger.
7. Many companies issue magnetic cards to direct laborers who use them to “log on” and “log off” to specific job assignments. They slide the card through a magnetic card reader that is connected to a computer terminal. The computer sends this information to the accounting department forthe preparation of the payroll and the distribution of the labor costs to the appropriate jobs.
8. Almost all payroll records would contain the following employee information:
a. Marital status
b. Number of withholding allowances for income tax purposes
c. Rate of pay
d. Hours worked per day
e. Regular earnings—hours and amount
f. Overtime earnings—hours and amount
h. FICA taxable earnings
i. Withholdings and deductions—FICA tax, federal, state, and local income taxes, health insurance, union dues, etc.
j. Net earnings paid—check number and amount.
9. a. The source for posting direct labor cost to the individual accounts in the job cost ledger are the labor-time records.
b. The labor cost summary is the source for postingdirect labor cost to the work in process account in the general ledger.
10. Labor-time records and a salaried-employee list provide the sources for posting to the indirect labor account in the factory overhead ledger.
11. Regular pay represents the regular hourly rate to be paid for an established hourly payroll period. The accounting treatment for regular payroll payments is to charge them to thejob or product when they constitute direct labor.
Overtime premium pay is an extra amount paid for each hour worked beyond the prescribed hourly payroll. The accounting treatment for overtime premium pay is generally to charge it to factory overhead in order to avoid overcharging a single job with an abnormally high amount of direct labor cost. (If the overtime was caused by a rush order,...