B Com Exam > B Com Videos > Cost Accounting > Overtime - Labour Cost, Cost Accounting
Overtime - Labour Cost, Cost Accounting Video Lecture | Cost Accounting - B Com
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FAQs on Overtime - Labour Cost, Cost Accounting Video Lecture - Cost Accounting - B Com
| 1. What is overtime and how does it affect labor costs? |  |
Ans. Overtime refers to the additional hours an employee works beyond their regular working hours. It usually involves paying a higher wage rate, known as overtime pay. Overtime can significantly impact labor costs as it increases the total wages paid to employees, resulting in higher expenses for the company.
| 2. How is overtime calculated in cost accounting? | |
Ans. In cost accounting, overtime is calculated by multiplying the number of overtime hours worked by the overtime rate. For example, if an employee works 3 hours of overtime at a rate of $20 per hour, the overtime cost would be $60 (3 hours x $20/hour).
| 3. What factors should be considered when determining whether to use overtime or hire additional staff? | |
Ans. Several factors should be considered when deciding between using overtime or hiring additional staff. These include the cost of overtime compared to hiring new employees, the availability of qualified workers, the impact on employee morale and productivity, the potential for increased errors or accidents due to fatigue, and the long-term sustainability of relying on overtime.
| 4. How does overtime affect profitability and cost control in a business? | |
Ans. Overtime can have both positive and negative effects on profitability and cost control. On one hand, it can help meet increased demand or urgent deadlines, leading to higher productivity and customer satisfaction. On the other hand, excessive use of overtime can result in increased labor costs, decreased employee productivity, and potential burnout, which can negatively impact profitability and cost control.
| 5. What are some strategies to effectively manage overtime costs? | |
Ans. To effectively manage overtime costs, businesses can consider implementing strategies such as: monitoring and analyzing overtime trends, optimizing work schedules to minimize overtime requirements, cross-training employees to ensure flexibility in staffing, evaluating and adjusting staffing levels based on demand forecasts, exploring automation or technology solutions to increase efficiency, and considering alternative work arrangements such as job sharing or flexible work hours to reduce the need for overtime.
Text Transcript from Video
before we move further and learn how to
calculate each of the different
compressors understand first of all what
is overtime and how do you make
calculations in case of overtime or time
is basically
straw time applied for work there's
always an agreed period of flying for
which you will be working in a day like
six hours eight hours shift 10 hours it
whatever it is that is an agreed period
of time and if employers require more
time of yours it will be paying you
extra for that otherwise maybe you won't
be happy with working extra because you
are not getting any extra thing and also
in many countries of the world there is
an ethical requirement that if you want
an employee to work for a decent period
of time you should be paying him extra
above the basic rate of pay ok so let us
understand this with an example for them
for one employee the basic rate of pay
is $12 per hour okay and in a week he is
working for 40 hours
all right for a particular week he
worked for let's say 50 hours
that means he is well how many how much
hours extra 10 hours and here is a
sentence for that employer pay $15 now
this would have said in number of ways
at the moment I have given you a solid
figure that for any extra time he is
working he will be paying $15 but it
would have been said in different ways
like this like instead of saying 15 I
would have said that overtime will be
paid at a rate
10 1/4
right now a r8n
fourth means a rate which is $12 and
one-fourth of it it means twelve divided
by four gives you three so 12 plus 3
comes 15 okay so in an exam you should
be paying attention that what it is
actually telling you because if you are
not given a solid figure you might be
given the rate of overtime in
descriptive form just like in second
sentence I hope you have understood it
if you have any confusion just ask me in
order to solve this question you have
two ways to do this one is that you make
a calculation for 40 hours separately
and 10 hours that you have worked extra
separately okay and in that case you
will be simply multiplying 40 which is
your agreed number of hours with 12 and
you will get what
40 in case of additional ten hours if we
will divine it with 15 and you get 150
and so your total will be 40 plus 150
gets
six-thirty this is one way of doing the
calculation
although ounces of 630 is correct there
is no problem with that but in when you
are sitting and making a decision then
doing the calculations like this we can
give you the problems let's understand
how overtime works or how the concept of
time works
what is overtime basically our time is
basically some overtime pay sorry
overtime pay is sum of two things one is
the basic pay
right and on the other hand it is an
overtime premium if you are asking your
employee to work extra you will
definitely be paying what you have
agreed for the paying that minimum level
of pay or compensation at all cost
okay for example in case of the rate I
have given in my example is 15 now $12
you will bang in for sure no doubt about
that but extra $3 that you are paying is
basically a premium for overtime work
that is overtime premium and both of
them collectively mix up overtime pay
all right now if we understand this
let's understand the flaw in our
calculation this amount of for $80 is
completely a basic pay right all of that
amount because this is the grid number
of hours and this is the basic pay rate
so all or the total of this which comes
a 480 is basically only basic pay it has
nothing in it called as overtime pre pay
or even a premium but looking at this
one this 150 is made up of two things
one is the basic aspect of it which is
10 multiplied by 12 which comes up 120
and another is for the same ten hours
$3.00 premium extra and comes up 30 okay
so what do we have here we have a 40
hours here for which we have a basic pay
in total where in case of 10 hours we
have a sum of basic pay
overtime premium
why don't we just make it even more
simple by moving this 120 with 418
alongside here
okay and keep the overtime premium
separate that way I will be able to get
glit how much extra I'm paying in terms
of overtime because only the extra you
are paying is the overtime premium above
the basic rate okay there is another one
reason why we are doing this but I will
be coming to that in a minute so in
order to solve this out that both of
this basic pay which are scattered it
should be calculated as one figure so
every time you are going to make a
calculation for labor costing you will
be calculating basic pay on the basis of
actual times worked not the agreed time
or general time or usual time no you
would be calculating your basic pay and
actual time worked which is 50 hours so
multiply it with 12 and you will get 600
and other than that now you have only
overtime premium so what I am suggesting
you to do is that you should be
calculating overtime premium instead of
overtime pay because if you are
calculating overtime pay you are
scattering the data into engine in at
two places especially regarding basic
pay so that won't help you alright
in ten hours multiplied by three coz 30
and you see here as well that your
answer is going to still still the same
it does not make any difference total is
still the same but the way you have
calculated the figures now is going to
help you noticing another reason why us
why am I asking you to keep it like this
or why should we be separating only
overtime premium not the basic portion
of what overtime pay is that
cause overtime premium a
as indirect cost that means words even
if you are paying or what I'm bringing
to your direct labor even then your
overtime premium will be treated as
overhead cost understood there is no
doubt that indirect Labor's cost will be
an indirect cost no doubt about that but
even if you are paying your overtime
premium to direct labor the personnel
were directly involved in the production
process even then over time bringing
only overtime premium not even the basic
pay portion of the overtime pay only the
overtime premium which is 30 in our
example will be treated as overheads the
rest of the $600 is your direct cost and
it will be treated as direct labor cost
okay all right if we have understood up
at this point let me give you one very
simple question enough that I would be
giving you a bit challenging one all
right we have five minutes to do it go
on this was a pretty straightforward
question and in this if you have to do
is first of all in order to calculate
what is your basic pay you simply have
to multiply actual hours which is 48 and
multiply it with nine and you get for
that 432 okay and in case of overtime
premium it is 11 hours worked it applied
by how much for one third of no it will
be three sorry for that this
three and if you sum it up across pay is
465 so instead of calculating the
compensation for 37 hours separately
from eleven hours what you need to do is
you should feel good basically on the
total hours worked okay an overtime
premium is then calculated on extra time
you want but only additional rate you
are paying would be used for that this
way your direct cost which is your basic
pay will be separate from an indirect
cost otherwise what's happening here 333
and 132 you know all
oh this 333 is a diet cost but this 132
also includes partially direct cost and
honestly in that cost so what's
happening here let me give you the
problem if you can get the way you have
calculated you have 333 here and 132
here
out of the
82
at 33 and 99 are the values now your
basic pay is basically total of these
two and this is your time green
so by looking at these calculations you
cannot simply judge how much you are
paying in terms of basic way you have to
make a separate calculation for that and
it is a lengthy process and also if your
boss asks you that you have to give me
the separate congressional direct and
indirect labor cost you cannot do that
you have to separate it afterwards so it
is a much more easier way that you can
go to basically on total hours worked
and for any extra time only calculate
overtime premium that is a different
rate it is three dollars and that way
your gross pay will still be the same
but the your calculations will be much
more clear now one more thing about
overtime that although we know that
overtime premium is used as an indirect
cost however there is an exception to
that
if overtime is asked by the customer
that means you are working extra on the
request of the customer customer has
particularly specifically requested for
you to do the overtime and for that he
is definitely paying you extra playing I
paying you higher price in that case
overtime premium will be treated as part
of direct cost direct labor cost and
surprisingly okay we know that the
direct labor and any related overtime
premium that we have paid to directly by
batiste as a direct labor cost but you
know even in case of indirect labor if
we have paid overtime premium in this
particular situation that is customer
has asked you to work extra even that
overtime thing will be treated as direct
labor cost the basic pay will still be
treated as indirect labor cost or
overheads but overtime premium even if
it is paid to indirect labor under the
situation that customer has asked you to
do
and overtime that overtime premium will
be treated as direct ever cost
calculate each of the different
compressors understand first of all what
is overtime and how do you make
calculations in case of overtime or time
is basically
straw time applied for work there's
always an agreed period of flying for
which you will be working in a day like
six hours eight hours shift 10 hours it
whatever it is that is an agreed period
of time and if employers require more
time of yours it will be paying you
extra for that otherwise maybe you won't
be happy with working extra because you
are not getting any extra thing and also
in many countries of the world there is
an ethical requirement that if you want
an employee to work for a decent period
of time you should be paying him extra
above the basic rate of pay ok so let us
understand this with an example for them
for one employee the basic rate of pay
is $12 per hour okay and in a week he is
working for 40 hours
all right for a particular week he
worked for let's say 50 hours
that means he is well how many how much
hours extra 10 hours and here is a
sentence for that employer pay $15 now
this would have said in number of ways
at the moment I have given you a solid
figure that for any extra time he is
working he will be paying $15 but it
would have been said in different ways
like this like instead of saying 15 I
would have said that overtime will be
paid at a rate
10 1/4
right now a r8n
fourth means a rate which is $12 and
one-fourth of it it means twelve divided
by four gives you three so 12 plus 3
comes 15 okay so in an exam you should
be paying attention that what it is
actually telling you because if you are
not given a solid figure you might be
given the rate of overtime in
descriptive form just like in second
sentence I hope you have understood it
if you have any confusion just ask me in
order to solve this question you have
two ways to do this one is that you make
a calculation for 40 hours separately
and 10 hours that you have worked extra
separately okay and in that case you
will be simply multiplying 40 which is
your agreed number of hours with 12 and
you will get what
40 in case of additional ten hours if we
will divine it with 15 and you get 150
and so your total will be 40 plus 150
gets
six-thirty this is one way of doing the
calculation
although ounces of 630 is correct there
is no problem with that but in when you
are sitting and making a decision then
doing the calculations like this we can
give you the problems let's understand
how overtime works or how the concept of
time works
what is overtime basically our time is
basically some overtime pay sorry
overtime pay is sum of two things one is
the basic pay
right and on the other hand it is an
overtime premium if you are asking your
employee to work extra you will
definitely be paying what you have
agreed for the paying that minimum level
of pay or compensation at all cost
okay for example in case of the rate I
have given in my example is 15 now $12
you will bang in for sure no doubt about
that but extra $3 that you are paying is
basically a premium for overtime work
that is overtime premium and both of
them collectively mix up overtime pay
all right now if we understand this
let's understand the flaw in our
calculation this amount of for $80 is
completely a basic pay right all of that
amount because this is the grid number
of hours and this is the basic pay rate
so all or the total of this which comes
a 480 is basically only basic pay it has
nothing in it called as overtime pre pay
or even a premium but looking at this
one this 150 is made up of two things
one is the basic aspect of it which is
10 multiplied by 12 which comes up 120
and another is for the same ten hours
$3.00 premium extra and comes up 30 okay
so what do we have here we have a 40
hours here for which we have a basic pay
in total where in case of 10 hours we
have a sum of basic pay
overtime premium
why don't we just make it even more
simple by moving this 120 with 418
alongside here
okay and keep the overtime premium
separate that way I will be able to get
glit how much extra I'm paying in terms
of overtime because only the extra you
are paying is the overtime premium above
the basic rate okay there is another one
reason why we are doing this but I will
be coming to that in a minute so in
order to solve this out that both of
this basic pay which are scattered it
should be calculated as one figure so
every time you are going to make a
calculation for labor costing you will
be calculating basic pay on the basis of
actual times worked not the agreed time
or general time or usual time no you
would be calculating your basic pay and
actual time worked which is 50 hours so
multiply it with 12 and you will get 600
and other than that now you have only
overtime premium so what I am suggesting
you to do is that you should be
calculating overtime premium instead of
overtime pay because if you are
calculating overtime pay you are
scattering the data into engine in at
two places especially regarding basic
pay so that won't help you alright
in ten hours multiplied by three coz 30
and you see here as well that your
answer is going to still still the same
it does not make any difference total is
still the same but the way you have
calculated the figures now is going to
help you noticing another reason why us
why am I asking you to keep it like this
or why should we be separating only
overtime premium not the basic portion
of what overtime pay is that
cause overtime premium a
as indirect cost that means words even
if you are paying or what I'm bringing
to your direct labor even then your
overtime premium will be treated as
overhead cost understood there is no
doubt that indirect Labor's cost will be
an indirect cost no doubt about that but
even if you are paying your overtime
premium to direct labor the personnel
were directly involved in the production
process even then over time bringing
only overtime premium not even the basic
pay portion of the overtime pay only the
overtime premium which is 30 in our
example will be treated as overheads the
rest of the $600 is your direct cost and
it will be treated as direct labor cost
okay all right if we have understood up
at this point let me give you one very
simple question enough that I would be
giving you a bit challenging one all
right we have five minutes to do it go
on this was a pretty straightforward
question and in this if you have to do
is first of all in order to calculate
what is your basic pay you simply have
to multiply actual hours which is 48 and
multiply it with nine and you get for
that 432 okay and in case of overtime
premium it is 11 hours worked it applied
by how much for one third of no it will
be three sorry for that this
three and if you sum it up across pay is
465 so instead of calculating the
compensation for 37 hours separately
from eleven hours what you need to do is
you should feel good basically on the
total hours worked okay an overtime
premium is then calculated on extra time
you want but only additional rate you
are paying would be used for that this
way your direct cost which is your basic
pay will be separate from an indirect
cost otherwise what's happening here 333
and 132 you know all
oh this 333 is a diet cost but this 132
also includes partially direct cost and
honestly in that cost so what's
happening here let me give you the
problem if you can get the way you have
calculated you have 333 here and 132
here
out of the
82
at 33 and 99 are the values now your
basic pay is basically total of these
two and this is your time green
so by looking at these calculations you
cannot simply judge how much you are
paying in terms of basic way you have to
make a separate calculation for that and
it is a lengthy process and also if your
boss asks you that you have to give me
the separate congressional direct and
indirect labor cost you cannot do that
you have to separate it afterwards so it
is a much more easier way that you can
go to basically on total hours worked
and for any extra time only calculate
overtime premium that is a different
rate it is three dollars and that way
your gross pay will still be the same
but the your calculations will be much
more clear now one more thing about
overtime that although we know that
overtime premium is used as an indirect
cost however there is an exception to
that
if overtime is asked by the customer
that means you are working extra on the
request of the customer customer has
particularly specifically requested for
you to do the overtime and for that he
is definitely paying you extra playing I
paying you higher price in that case
overtime premium will be treated as part
of direct cost direct labor cost and
surprisingly okay we know that the
direct labor and any related overtime
premium that we have paid to directly by
batiste as a direct labor cost but you
know even in case of indirect labor if
we have paid overtime premium in this
particular situation that is customer
has asked you to work extra even that
overtime thing will be treated as direct
labor cost the basic pay will still be
treated as indirect labor cost or
overheads but overtime premium even if
it is paid to indirect labor under the
situation that customer has asked you to
do
and overtime that overtime premium will
be treated as direct ever cost
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Dec 19, 2024 Last updated |
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