2/22/2017

ACCOUNTING FOR Chapter 8

LABOR

WHAT IS LABOR?

•Labor is the physical or

mental effort expended in
manufacturing a product.
•It is the price paid for
using human resources.

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SALARIES AND WAGES

Salaries
•Fixed payments made regularly for
managerial or clerical services.

Wages
•Payments made on an hourly, daily, or
piecework basis to production workers.

FACTORY PAYROLL COSTS

Direct Labor
• Payroll costs that are allocated directly to the product
• Debited to Work In Process account

Indirect Labor
• Costs incurred related to production but are
considered either too remote or too insignificant to be
charged directly to production.
• Charged to Factory Overhead Control Account.

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WAGE PLANS
Hourly
Piece Rate
Rate

Modified
Wage

HOURLY RATE

Definite rate per hour is set for

each employee.
Employees’ wages computed by
hours worked x rate per hour.
Simple to use but does not
provide incentive for the employee
to achieve a high level of
productivity.

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PIECE RATE

Computed by employees’
output x rate per piece.
Provides incentive for the
employee to produce more.
Risk of sacrificing quality
in order to maximize
earnings.

MODIFIED WAGE

Combination of hourly
and piece rate.
Minimum hourly wage
plus additional payment
per piece if quota
exceeded.

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TIME KEEPING DEPT & PAYROLL DEPT

Time
Payroll
Keeping
Payroll
Clock Cards
records

Employee’s
Time Tickets earning
records

Production Payroll
Reports Summary

ACCOUNTING FOR LABOR

COSTS
•Regular time worked is
charged to job debiting
work in process.
•Overtime premium is
charged to Factory
Overhead.

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EMPLOYER’S PAYROLL TAXES

SSS Contribution
• Benefits- pension upon retirement; salary loan,
educational loan, maternity leave.

PhilHealth Contribution
• Benefits are enjoyed when the employee is hospitalized.

Pag-ibig Funds Contribution

• Educational loan, Salary loan, Housing loan, return of
total amount paid by employee and employer plus
dividends.

JOURNAL ENTRIES RELATING TO

PAYROLL
Sample:
Payroll P30,000.00
SSS Premium payable 833.30
Philhealth Contributions Payable 375.00
Pag-ibig Funds Contributions Payable 200.00
Withholding Tax payable 4,812.58
Vouchers Payable 23,719.12

Vouchers Payable P23,719.12

Cash 23,719.12

FOH Control 931.70

Selling and Admin Expense Control 1,285.00
SSS Premiums Payable 1,766.70
Philhealth Contribution Payable 250.00
Pag-ibig Funds Contributions Payable 200.00

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LABOR OVERHEAD

Waiting/Idle Make-up Overtime

Time Pay Premium

Shift Employer’s
Premium Payroll taxes

WAITING OR IDLE TIME

•Cost of non-productive hours of direct
labor caused by
• lack of work
• waiting for materials delays from scheduling
• machine breakdown and machine setup.
•Sample Entry
Work in Process 1,800
FOH Control-idle time 200
Accrued Payroll 2,000

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MAKE UP PAY
Companies pay a guaranteed minimum wage but they can earn
more if they produce more.
Sample: Lechon James is paid P20 per piece of work. He
produced 50 pieces. If guaranteed pay is P1,200, then the
difference between P1,200 guaranteed pay and P1,000 actual
pay is charged to FOH control account.
Work In Process 1,000

FOH Control 200

Accrued Payroll 1,200

If guaranteed pay is only P800, then

Work in Process 1,000
Accrued Payroll 1,000

OVERTIME PREMIUM
Amount paid in excess of regular rate, to employees working
in excess of 8 hours in a day, or working during holidays or
their rest day.
Computed by Overtime Hours times Premium Rate.
Sample: Gay Allen worked for 45 hours @ P50 regular rate
during the week and he is paid time and a half.
Work In Process (45 hours x P50) 2,250
FOH Control (5 hours x P25) 125
Accrued Payroll 2,375
If overtime is caused by a requirement of a specific job,
charged to WIP instead of FOH.

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SHIFT PREMIUM
Extra Pay to work during less desirable evening shifts
or night shifts.
Charged to FOH rather than WIP
Sample: Step Curry is assigned to night shift and is
paid a shift premium of P20 per hour
Work In Process (40 hours x P50) 2,000
FOH Control(40 hours x P20) 800
Accrued payroll 2,800