VanDerbeck14e Sm Ch03

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CHAPTER 3

QUESTIONS

1. Direct labor is that part of factory wagesearned by employees who perform work onthe item manufactured; it is charged directlyto the job or product. Indirect labor is thatpart of factory wages earned by employeesengaged in the manufacturing process whodo not work directly on the units beingmanufactured; it cannot be charged to anyparticular job or product but must be treatedas overhead.

2. a. An advantage of the hourly rate plan isthat there is no temptation on the part ofthe workers to speed up their work atthe sacrifice of quality or perfection. Onthe other hand it provides no incentivefor increased production.

b. !he principal advantage of the piece"rate plan is that it provides an incentivefor increased production. !he moreunits produced under such a plan thehigher the employee#s earnings.$owever there may be a temptation tostrive for a high level of output at asacrifice of quality. A greater degree ofsupervision is required and moredetailed 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. %mployees are paid a regularhourly wage plus an additional incentiverate if established quotas are e&ceeded.

4. In production work teams output isdependent upon contributions made by allmembers of the work crew. If the number ofpieces finished depends on a group effortthen a single incentive plan for the groupmay be appropriate.

5. !he payroll department is responsible for

determining the amount of eachemployee's(

a. gross earnings.

b. withholdings and deductions.

c. net pay.

!he payroll department should also providethe accounting department with theinformation necessary to allocate the laborcosts.

6. !he labor"time record shows the employee'stime spent on each job as well as the timespent on indirect labor activities. It is thesource document for allocating the cost oflabor to jobs or departments in the job costledger and the factory overhead ledger.

7. )any companies issue magnetic cards todirect laborers who use them to *log on+ and*log off+ to specific job assignments. !heyslide the card through a magnetic cardreader that is connected to a computer

terminal. !he computer sends thisinformation to the accounting departmentfor the preparation of the payroll and thedistribution of the labor costs to theappropriate jobs.

8. Almost all payroll records would contain thefollowing employee information(

a. )arital status

b. ,umber of withholding allowances forincome ta& purposes

c. -ate of pay

d. $ours worked per day

e. -egular earningshours and amount

f. Overtime earningshours and amountg. !otal earnings

h. /I0A ta&able earnings

. 1ithholdings and deductions/I0Ata& federal state and local incometa&es health insurance union duesetc.

!. ,et earnings paidcheck number andamount.

". a. !he source for posting direct labor costto the individual accounts in the job costledger are the labor"time records.

b. !he labor cost summary is the sourcefor posting direct labor cost to the workin process account in the generalledger.

1#. 2abor"time records and a salaried"employeelist provide the sources for posting to theindirect labor account in the factoryoverhead ledger.

11. -egular pay represents the regular hourlyrate to be paid for an established hourly

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payroll period. -egular payroll payments arecharged to the job or product when theyconstitute direct labor.

Overtime premium pay is an e&tra amountpaid for each hour worked beyond theprescribed hourly payroll. Overtime

premium pay is generally charged to factoryoverhead in order to avoid overcharging asingle job with an abnormally high amountof direct labor cost. 3If the overtime wascaused by a rush order that job should becharged with the overtime premium.4

12. %ffective internal control would require thatthe charge to the work in process accountbe determined from the labor cost summarythat was prepared from the labor"timerecords. !he charge to the work in processcontrol account should be supported by theseparate charges made to individual jobsfrom labor"time records. !he offsetting

credit to the payroll account should besupported by the separate calculation of thegross wages earned by each employee.

13. Accounts used to record employees' ta&esare( /I0A !a& 5ayable and %mployeesIncome !a& 5ayable.

!he employer#s accounts for payroll ta&es are(/I0A !a& 5ayable /ederal 6nemployment!a& 5ayable 7tate 6nemployment !a&5ayable /actory Overhead 3for payroll ta&eson factory labor4 and 5ayroll !a& %&pense 3forpayroll ta&es on administrative and salessalaries4.

14. !he procedures involved in accounting forlabor and supporting forms are(

a. -ecording the length of time eachemployee works in the factory both intotal and in detail.

Forms used: labor-time records.

b. Analy8ing the time worked to determinehow each employee's time was spent.

Forms used: labor-time records.

c. 0harging the daily cost of factory laborto the proper jobs or the proper factoryoverhead accounts.

Forms used: labor"time records andlabor cost summary.

d. 5reparing the payroll computing thepayroll ta&es and other deductions anddetermining the net wages payable tofactory employees.

Forms used: payroll record andemployees' earnings records.

15. a. and b. !he schedule of earnings andpayroll ta&es is used to distribute the total

payroll and to record the employer's payrollta&es.

16. A shift premium is the additional pay thata worker receives for working the secondor third shift of a workday. If a day workerreceives 9: per hour a worker on a night

shift may receive an additional 9 perhour because of the later shift. !headditional 9 per hour would be a shiftpremium.

17. A basic provision of all pension plansshould be to accrue systematically overthe period of active service the totalestimated cost of the employee's pensionfrom the date of the pension plan to thedate the worker retires.

18. /actory bonuses vacation pay and holidaypay are all chargeable to factory overheadand are accrued with other factory payrollcosts over the period that the employeeworks during the year.

1". An hourly rate may be developed for eachdirect laborer that includes an amount forfringe benefits and then used to trace grossearnings plus fringe benefits to the specific

jobs being worked on or the fringe benefitsmay be collected in an overhead cost pooland allocated to all jobs worked on duringthe period using an allocation base such asdirect labor hours.

2#.a. 6nder a defined benefit plan anemployee receives a specific amountof retirement income based on apredetermined formula related toincome level and years of service.6nder a defined contribution plan anemployee may contribute a certainamount of pre"ta& earnings that areoften matched by the employer tonumerous investment vehicle choices.!he amount of the pension is tied tothe performance of the investments.

b. ,on"contributory pension plans arecompletely funded by the employer.0ontributory plans require a partialcontribution from the employee.

0ontributory plans are much morecommon than non"contributoryplans nowadays.

21. In employees could contribute aprescribed percentage of their income to a?=3@4 plan up to ma&imums of 9===and 9


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a. 9:=-egular( 1ork in 5rocess 9>BC.=

C hours 9.== 3regular rate4 9 :.== /actory Overhead

3)aintenance and -epair4 9C.=Overtime premium(

E hours 9C.= 3half of regular rate4 9BC.= /actory Overhead

? hours 9 3equal to regular rate4 9>=.== C.= 3Overtime 5remium49 =BC.=/actory Overhead 3Overtime 5remium4......................... C.=/actory Overhead 3)aintenance and -epair4............... C.=

5ayroll........................................................................ =


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EERCISES

E3'2

a. 5ayroll ............................................................................... ==1ednesday

: ??= >= C> C>

!hursday : ?= >= := :=/riday : E>= >= ?? > >=!otal ?= 9:== 9:< 9


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a. !he overtime premium could be charged to ob ?=< or charged to /actoryOverhead and allocated between obs ?= and ?=


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a. 5ayroll ............................................................................... =


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a.Reg)+a& Ea&,,g* O0e&%e P&e) T(%a+ ICA I,c(e Ne%

E$+(/ee H()&* Ra%e A(),% H()&* Ra%e A(),% Ea&,,g* 8= Ta Ea&,,g*

Doellman . ?< 9< 9 =?.== < 9>.== 9.== 9 ?..== E

>.==:.== E?.== ?>=.== ?

C.=

E=.== >B=.== .=.== E>=.==


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a.

I,c(eC+a**f' Reg)+a& O0e&%e T(%a+ ICA Ta Ne%

E$+(/ee ca%(, H()&* Pece* Ra%e Ea&,,g* P&e) Ea&,,g* 8= %hhe+d Ea&,,g*

0ooper-. Direct ?< 9:.==Mhr 9C>.== 9 :.== 9 CC?.== 9 >.B< 9 :=.== 9 >E=Mhr :??.:= C=.?= B.:-oberts-. Indirect ?= 9:==Mwk :==.== :==.== >?.== ==.== >E>.==1anous%. Indirect ?= 9>==Mwk >==.== >==.==


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4. /actory Overhead........................................................ BE=.B/I0A !a& 5ayable.................................................. C

7tate 6nemployment !a& 5ayableJJ...................... .?J/ederal unemployment ta& 9C>.JJ7tate unemployment ta& 9C>.


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PRO>?ES

P3'1

1. Actual production for week................................................ EE=> ==4................................................ E=:=== units

%&cess units over standard........................................... 3bonus rate per hour4 9EEC.B< 3total bonus for week4

2. A. he+a,@*total wages(

9?.== 3hourly wage4 E.>CH 3bonus4 9.:E hourly wage for weekE hours 9:.>:E 9>E.=? 3total wages for week4


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1. 2ALO- !I)% -%0O-D

-ecord ,o( 2!- BBB

%mployee ,ame( Nicki Larr%mployee ,o( =E>"?C"


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P3'3

.Id+e TeI,c+)ded I,c(e

Reg)+a& O0e&%e

, Reg. T(%a+ ICA Ta Ne%

E$+(/ee* H()&* Ea&,,g* P&e) Ea&,,g*B Ea&,,g* 8= 18= Ea&,,g*

Arroyo ?< 9 >E=.== 9 .== 9 >?.== 9 .>= 9>.= 9 ?CC.E=

Aurilia ? ?=.== = E:?.:=2ope8 ?: ?:=.== ?=.== = BE.>= E:?.:=Dunn ? ?=.==


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4. 7ince overtime is proportionate to regular hours chargeable to vans an averagelabor rate including overtime premium can be calculated and used for distribution

as follows(T(%a+ H()&* T(%a+ Ea&,,g* A0e&age ?ab(& Cha&ged %( Cha&geab+e %( Ra%e I,c+)d,g

Da,* Da,* O0e&%e f(& ee

Aurilia .............................. ? 9?C.== 9=.>riffey ............................. ?: 9=.> 9=.> 9


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8# Cha$%e& 3

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1.T(%a+

U,e$+(/e,% Tae*C+a**fca%(, Ea&,,g* ICA ede&a+ S%a%e Tae*

(f f(& Ta Ta Ta I$(*ed (,age* a,d Sa+a&e* (,%h 8= 1= 4= E$+(/e&

Direct labor ............. 9:::=.== 9 C=?.?= 9 ::.:= 9E


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P3'6

1. a. 5ayroll.......................................................................... ==.==%mployees Income !a& 5ayable............................. ?==.==b. 1ages 5ayable............................................................ >?==.==

0ash......................................................................... >?==.==

c. /actory Overhead........................................................ .==J5ayroll !a& %&pense 37ales and Administrative7alaries4....................................................................... ?B?.==JJ

/I0A !a& 5ayable.................................................... >==.==/ederal 6nemployment !a& 5ayable......................


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P3'7

1.T(%a+

Ea&,,g*Ea&,,g* Pe& ee Th&()gh ICA I,c(e

O0e&%e (&%e%h Taab+e Ta Ne%E$+(/ee Reg)+a& P&e) T(%a+ ee Ea&,,g* ICA %hhe+d Ea&,,g*

Lush 9


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d. /actory Overhead.................................................


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P3'8

1. $ours required(

/irst ===== units R hours per unit....................... =====7econd ===== units R hours per unit :H...... ?C===

1ages paid at regular rate(

?>C=== hours 9C===2ess regular hours available(


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4. $ours(Nacation pay


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P3'"

1.EP?OEE EARNINS RECOR-S

ee+/Ea&,,g*

ee+/ Acc))+a%ed S)b!ec% %hh(+d,g* Ne%

ee &(** &(** %( ICA I,c(e A(),%

E,d,g Ea&,,g*

Ea&,,g* ICA Ta Ta Pad

$. /ord M: 9E== 9


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M= :C.== CE.?=


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2.PARO?? RECOR-

%hh(+d,g* Ne%

E$+(/ee@* Nae &(** ICA I,c(e A(),%ee E,d,g 11;8F Ea&,,g* Ta Ta Pad

$. /ord.......................................... 9 E==.== 9 .==). ibsonSSSSSSSSSS.


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?ab(& C(*% S)a&/(& %he (,%h E,ded N(0ebe& 3# 2#G

-&. -&. -&. C&.(& , P&(ce** ac%(&/ O0e&head Ad,. Sa+a&e* Pa/&(++

ee E,d,g -&ec% ?ab(&B I,d&ec% ?ab(&B OffceB T(%a+B

M: 9 B==.== 9


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4. a. ,ov. : 5ayroll....................................................... ECE


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1.ede&a+ S%a%e

ICA U,e$+(/' U,e$+(/' T(%a+Taab+e Ta e,% Ta e,% Ta Pa/&(++

I%e* Ea&,,g* 8= 1= 4= Tae*

/actory wages 9E


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an. =:??.==

E 5ayroll........................................................... ===.==%mployees Income !a& 5ayable.............. ==.==/I0A !a& 5ayable.....................................


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P3'11

/actory Overhead 3Lonus4JSSSSSSSSSSSSSSS :===/actory Overhead 3Nacation 5ay4JJ......................................... :===/actory Overhead 3$oliday 5ay4JJJ......................................... ?===

Lonus 2iability.................................................................. :===Nacation 5ay 2iability........................................................ :===$oliday 5ay 2iability.......................................................... ?===

J9?===== = weeks 9:===

JJ39


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"4 Cha$%e& 3

INI'CASE 1

1. !he controller is correct in assuming that the weekday overtime and the bonus arefactory overhead costs and should be spread over all production for the period.6nder the circumstances however it would be improper to charge 7aturday and

7unday overtime to factory overhead. !hese costs should be charged to theweekend jobs that were rush orders.

!he plant manager is incorrect in allocating weekday overtime to particular jobsbecause the overtime was required due to scheduling more work than could bedone during a regular workday. It would be improper to charge jobs that happen tobe in production during the overtime period. All production during the period shouldbear part of the additional cost. !he plant manager is also incorrect in charging thebonus to administrative e&penses since factory workers' bonuses are part of thecost of production.

!he sales manager's belief that overtime premiums and bonuses are not part of

factory costs indicates a lack of understanding of the concept that all costs e&ceptselling and administrative e&penses should be included in the cost of the product.

Lased on the facts given the most appropriate procedure would be to charge theweekday overtime and bonus to factory overhead. 3!he bonus could however beadded to each direct laborer's hourly rate and traced to the specific job.4 !he7aturday and 7unday overtime should be charged to the rush"order jobs that wereworked on during the weekends.

2. 1ork in 5rocess................................................................ ?EE===/actory Overhead.............................................................. E==0omputation of 1ork in 5rocess(

1eekdays( 3?=E== H 9?>E


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INI'CASE 2

1. A piece"rate plan provides an incentive for employees to produce a high level ofoutput thereby ma&imi8ing their earnings and company production and revenues.$owever a serious shortcoming of such plans is that they may encourage

employees to sacrifice quality for quantity. One solution is to adopt a piece"rateplan based on the production of good units only.

2. ,o the compensation may be a combination of hourly"rate and piece"rate plans.Lecause such a modified wage plan provides a base hourly wage regardless of thelevel of production it may cause employees to feel less pressure to ma&imi8equantity at the e&pense of quality.

3. Tes incentive compensation plans are often used in service businesses. /ore&ample salespersons in retail stores real estate agents and insurance agentsare e&amples of workers whose compensation is often either on a salary pluscommission or all"commission basis.


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"6 Cha$%e& 3

INTERNET EERCISE

1. According to /idelity the three"step approach to a successful retirement is(

P+a, f(& /()& g(a+"""7aving enoughU Do you have a plan for living in

retirementU

E$+(&e ,0e*%e,% ($%(,*'''$ow can you help your money grow"""andlast as long as you'll need itU

S%a/ (, %&ac""")ake sure your plan stays up to date.

2. !he steps that you will need to follow after you open a -ollover I-A are(

,otify your former employer that you are rolling over your assets to a

/idelity I-A.

0omplete any distribution forms required by your former employer.

0onfirm when your former employer will distribute the funds.

Ask your former employer to write your /idelity I-A account number onyour distribution check and make it payable to /idelity )anagement !rust

0ompany.3. /idelity's = 7mart )oves for -etirement are(

0onsider ma&ing out and catching up in your ?=3k4 and I-A.

7ave now for more later

)ake your asset mi& match you.

7tretch your salary.

0reate your own income stream.

Don't withdraw too much too soon.

0reate a realistic budget.

%&pect and plan for the une&pected.

7tay on track. )i& and match the smartest moves for you.

Documents

VanDerbeck14e Sm Ch03