Accounting Q&A · Cost and Management Accounting · Topic 5
Try each question, then compare your reasoning with the answer.
25 short-answer questions. Try each question before revealing its answer.
Worked example
An operator earns 20 an hour for 40 hours plus 5 overtime hours at 1.5 times the base rate. Total gross pay is 950, including a 50 overtime premium.
Core concepts
1. What is direct labour?
Labour economically traceable to a product, job or other cost object.
2. What is indirect labour?
Labour that supports operations but is assigned through overhead rather than traced directly.
3. Is a factory supervisor’s salary usually direct labour?
It is generally production overhead unless traceable to the chosen object.
4. What is a time sheet?
A record of hours worked, often identifying jobs or activities.
5. What is a time rate?
Pay calculated from hours worked and the applicable hourly rate.
6. What is a piece rate?
Pay based on the quantity of accepted output under an agreed rate.
7. What is gross pay?
Employee earnings before deductions.
8. What is net pay?
Gross pay less employee deductions.
9. How do employer contributions affect labour cost?
They increase employer cost and are separate from deductions withheld from employee pay.
Worked applications
10. An employee works 38 hours at 18. What is base pay?
684.
11. What is gross pay for 200 accepted units at 2.50 per unit?
500.
12. What is overtime premium?
The excess of overtime pay over base pay for the overtime hours.
13. What is the premium for four hours at time-and-a-half on a 20 base rate?
40. The total overtime pay is 120.
14. When can an overtime premium be assigned directly to a job?
When the job caused the premium and the costing policy supports direct assignment.
15. How is general production overtime premium often treated?
It is often assigned through production overhead.
16. What is idle time?
Paid time when an employee is not producing output or performing the expected activity.
17. What is an example of normal idle time?
An expected short setup or waiting period under normal working conditions.
18. How should abnormal idle time be handled?
Investigate the cause and account for it separately as required by the costing and reporting policy.
Review and exam practice
19. What is a direct expense?
A traceable job cost other than direct materials or labour.
20. Give an example of a direct expense.
A royalty charged per unit produced under a product-specific licence.
21. A job uses 12 hours at 24 per hour. What direct labour is assigned?
288, excluding any separate payroll burden.
22. The same job pays a traceable royalty of 80. What are labour plus direct expenses?
368.
23. Why reconcile time sheets to payroll?
To verify that recorded work, pay and job allocations agree.
24. How do payroll deductions affect labour expense in a simple entry?
Record gross wages as the expense or cost and amounts withheld as liabilities until remitted.
25. What should a labour cost review check?
Review time, rates, allocation, overtime approval and the treatment of idle time.