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CHAPTER 3

QUESTIONS
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
particular job 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 piecerate plan is that it provides an incentive
for increased production. 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 piecerate 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
determining
the
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.

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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 for allocating 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
for the 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
g. Total earnings
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 posting direct 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

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12.

13.

Chapter 3

payroll period. Regular payroll payments are
charged to the job or product when they
constitute direct labor.
Overtime premium pay is an extra amount
paid for each hour worked beyond the
prescribed
hourly
payroll.
Overtime
premium pay is generally charged 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, that job should be
charged with the overtime premium.)
Effective internal control would require that
the charge to the work in process account
be determined from the labor cost summary
that was prepared from the labor-time
records. The charge to the work in process
control account should be supported by the
separate charges made to individual jobs
from labor-time records. The offsetting
credit to the payroll account should be
supported by the separate calculation of the
gross wages earned by each employee.
Accounts used to record employees’ taxes
are: FICA Tax Payable and Employees
Income Tax Payable.

16.

17.

18.

19.

The employer's accounts for payroll taxes are:
FICA Tax Payable, Federal Unemployment
Tax Payable, State Unemployment Tax
Payable, Factory Overhead (for payroll taxes
on factory labor), and Payroll Tax Expense (for
payroll taxes on administrative and sales
salaries).

The procedures involved in accounting for
labor and supporting forms are:
a. Recording the length of time each
employee works in the factory, both in
total and in detail.
Forms used: labor-time records.
b. Analyzing the time worked to determine
how each employee’s time was spent.
Forms used: labor-time records.
c. Charging the daily cost of factory labor
to the proper jobs or the proper factory
overhead accounts.
Forms used: labor-time records and
labor cost summary.
d. Preparing the payroll, computing the
payroll taxes and other deductions, and
determining the net wages payable to
factory employees.
Forms used: payroll record and
employees’ earnings records.
15. a. and b. The schedule of earnings and
payroll taxes is used to distribute the total

payroll and to record the employer’s payroll
taxes.
A shift premium is the additional pay that
a worker receives for working the second
or third shift of a workday. If a day worker
receives $8 per hour, a worker on a night
shift may receive an additional $1 per
hour because of the later shift. The
additional $1 per hour would be a shift
premium.
A basic provision of all pension plans
should be to accrue systematically, over
the period of active service, the total
estimated cost of the employee’s pension
from the date of the pension plan to the
date the worker retires.
Factory bonuses, vacation pay, and holiday
pay are all chargeable to factory overhead
and are accrued with other factory payroll
costs over the period that the employee
works during the year.
An hourly rate may be developed for each
direct laborer that includes an amount for
fringe benefits and then used to trace gross
earnings plus fringe benefits to the specific
jobs being worked on, or the fringe benefits
may be collected in an overhead cost pool
and allocated to all jobs worked on during
the period using an allocation base such as
direct labor hours.
20. a.

14.

Under a defined benefit plan an
employee receives a specific amount
of retirement income based on a
predetermined formula related to
income level and years of service.
Under a defined contribution plan an
employee may contribute a certain
amount of pre-tax earnings, that are
often matched by the employer, to
numerous investment vehicle choices.
The amount of the pension is tied to
the performance of the investments.

b. Non-contributory pension plans are
completely funded by the employer.
Contributory plans require a partial
contribution from the employee.
Contributory plans are much more
common
than
non-contributory
plans nowadays.
21.

In 2006, employees could contribute a
prescribed percentage of their income to a
401(K) plan up to maximums of $15,000
and $20,000 for employees under 50 years
old and 50 years of age and greater,
respectively.

Chapter 3

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... Work in Process.......75 187..50 Note: The single journal entry for one employee is required here only for the purpose of illustrating the principle involved....50 48.00 { $697.50 b.012....00 Total Gross Earnings $120.......00 15.....00 198....00 15.....00 22...00 120....... Factory Overhead (Maintenance and Repair)....00 855..50 26............75 97.......012.50 Chapter 3 40 Time-anda-Half = Rate .......00 15..50 = $60.50 $157................. Calculation for distribution of labor costs (not required in student’s solution): × Hours Regular Sunday (indirect) Monday (direct) Tuesday (direct) Wednesday (direct) Thursday (direct) Friday (direct) Saturday (indirect) 8 8 8 8 8 DoubleTime 4 $15.....00 120.50 157....50 Factory Overhead (Overtime Premium) 157. Normally the entry would be for the total factory payroll for the period..50 $1......00 3½ 3 6½ 13 Regular 4 Time-anda-Half $22....50 $ 157...68 E3-1 a..50 157......00 $ 60..25 Account Debited Factory Overhead Expense Work in Overtime Process Premium M&R $ 60.00 120.......50 (half of regular rate) 4 hours × $15 (equal to regular rate) $ = $97.50 $ 1...... Factory Overhead (Overtime Premium)..012..50 22........50 146..25 165..00 120... $810 Regular: 57 hours × $15. Work in Process Factory Overhead (Maintenance and Repair) 697.........00 $120...50 DoubleTime $30......50 $ 157..50 22...00 120..00 (regular rate) = Overtime premium: 13 hours × $7...00 15........50 1.00 172...... Payroll...50 $ 697.

...................25 830..50 81... Payroll .........................................0% of $1........................ Factory Overhead............25 E3-3 a.............. Employees Income Tax Payable (10................ Cash..............50) Wages Payable..... Wages Payable........................ Day Monday Tuesday Wednesda y Thursday Friday Total Hours Worked Pieces Finished Earnings @ $20/hr....... 812 24 836 Make-Up Guarantee $8 16 $24 Payroll Earnings $160 160 176 180 160 $836 .... Earnings @ $........................012.....................................00 101...........012......012...........0% of $1.....25 830.. Work in Process.... Payroll........... 830.............50)......40/piece 8 8 8 400 380 440 $160 160 160 $160 152 176 8 8 40 450 360 160 160 $800 180 144 $812 b..Chapter 3 69 EXERCISES E3-2 a...................... FICA Tax Payable (8................................. 1.25 b.................................................

..... 34.... b.........................215 600 1.......500 14 Payroll.......000 29.................... Health insurance Payable..............000* 11. $ 28........ Employees Annuity Payable ..736 4..................759 27....................600 $ 77..964 $ 2....... Costs of Jobs 401 and 402: Overtime Premium Charged to Job 402 Overtime Premium Charged to Factory Overhead Job 401 Job 402 Job 401 Job 402 Direct materials..................448 b..... If the overtime is not directly attributable to contract provisions or other factors identified with Job 402...940 2.560 26.. Factory overhead...............541 $ 3.....952 28...... FICA Tax Payable....... the overtime premium should be charged to Factory Overhead....... 36.....236 24.....000 7......780 24............000 5....... or if the overtime is due to an emergency demand by the customer................736 9.............120 600 1.............................. Wages Payable....................... June 7 June 14 June 21 June 28 $ 2... FICA Tax Payable......... Net earnings...................920 4................................ E3-5 a.600 $37.............940 $ 2.E3-4 a... 1..... Employees Income Tax Payable.........000 18. Employees Income Tax Payable..600 $ 37...................................200 Total cost. June 7 Payroll................000.. Direct labor..... FICA tax..200 $28....... the overtime premium should be charged directly to Job 402..........200 2............920 9... The overtime premium could be charged to Job 402 or charged to Factory Overhead and allocated between Jobs 401 and 402.200 *Includes overtime premium of $6...000 15........ If the contract provisions for Job 402 indicate the necessity for overtime in order to complete the job in accordance with the customer’s specifications...........000 18..............000 23. Health Insurance Payable.....984 9......825 26.................072 9........964 ... Total deductions....200 $ 53............ Employees Annuity Payable..600 $ 75... $ 51.. Wages Payable..................................

.....400 7 Wages Payable.......... There is no maximum cap on the amount subject to income taxes..............940 14 Wages Payable.... 26..448 26.. 38. $64..............................................................870 28........................964 21 Wages Payable........ b...... Cash.....000).........................320 600 1... June 2.......000................. Wages Payable.................... Employees Annuity Payable..000 is taxable and $242..........300 28 Payroll.. 28 Wages Payable............. Employees Annuity Payable ........................... All eight employees have earned more than $8....541 Sinclair ($102........ 27........ The total payroll amounts to $306.... c......... Wages Payable...............................................984 4..........................448 28..................................... Employees Income Tax Payable....................855 27.....000 − $100...... Health Insurance Payable........072 4...................... The employer is taxed on the first $8.........Chapter 3 E3-5 71 Concluded 21 Payroll........ ......... $2................................400.....................................541 28.................... FICA Tax Payable......... therefore.................541 3...........400 is exempt....... Cash.............. Employees Income Tax Payable.............................................. None................940 24................000 of each employee’s earnings for federal and state unemployment taxes....... Cash. FICA Tax Payable.......... The federal income tax is a progressive tax that is based on the amount that someone earns..............410 600 1.......... 37................964 27............ 24......000 2.........................448 E3-6 a............... Health Insurance Payable........ Cash..

00 E3-8 a. Factory Overhead.0% (State Unemployment) = 13% of total wages for the period...... Payroll .............................. FICA Tax Payable.... Factory Overhead...................200 172...............099....917 ...........25 86..........00 1...........500 1........25 895.................................................................125 162.......25 895..............................................................25 16................ Federal Unemployment Tax Payable (1...00 E3-9 a..... 1.25 830.........................................................05 × $1................................50 b.... Administrative Salaries..13 × 1.................................... Factory Overhead (Indirect Labor).............. 625... 830...........945 b..................................................... 895....................................................................25 c....... reduced by 5% of portion of wages directed to employees whose calendar-year earnings prior to period have exceeded $8.... FICA Tax Payable ...............................................................25 830...............0% (Federal Unemployment) + 4........0% of $200)...... Wages Payable... Cash.....00 101......................................................25 c........................... FICA Tax Payable (8.945) − (.................. State Unemployment Tax Payable (4.....012..........................E3-7 a. Employer’s payroll taxes = 8................................00 16.............0% of $100)........................50 b......... Payroll .... 16..........120 140.... Payroll............... Wages Payable.......................................................0% of $100)................ FICA Tax Payable.......................012......................... 81..000 (............ Employees Income Tax Payable............................099.................00 4........ Work in Process....... Sales Salaries. Employees Income Tax Payable .......................00 81.0% (FICA) + 1...............500) = $142.................. Wages Payable ......................... Cash........ Wages Payable ...................00 101.... 1.............................................................................

......00 4.........20 103....... 366..........................00 7.820 × 4..40 80.....00 2.............. J...................... Cash...... 40 40 9 18 360..0% = $112.60 423...............00 55.........20 112. 2..60 54..............00 720.........680..00 30. Employees Income Tax Payable.......171.... Factory Overhead ($360 +$720 + $60)......40 3..00 $2........... State Unemployment Tax Payable**..............00 225.....171................ Payroll...00 Total Earnings FICA 8% Income Tax Net Earnings 516.. 44 15 660.80 73 ..40 $2......50 531............. Federal Unemployment Tax Payable*.20 **State unemployment tax = $2...............00 28................00 b........ Wolf.00 720.....10 $ 397...... FICA Tax Payable.... 2.....................00 $12...30 360.....00 1..................171.................... Work in Process ($504 + $516 + $660)......................0% = $28......40 2. Factory overhead. Wages Payable.......50 Lavender....760..... 42 43 $12 12 $ 504...................00 18..00 277.....00 2.......820 × 1.820..60 $423. FICA Tax Payable......................820....... Payroll..... Wages Payable.......820.32 411.........80 *Federal unemployment tax = $2.......................00 108.. D....00 $ 41.......20 554.......00 2 3 Cage....00 516......28 42... J..00 534...72 $ 77.140.......40 $ 6........Chapter 3 73 Chapter 3 E3-10 a....171....00 $2.........00 $60....... Burrell....40 2.....60 28........80 57.....00 4 $6. 1.......... 1.....18 690.........00 $225..................... Employee Hours Regular Earnings Rate Amount Overtime Premium Hours Rate Amount Doellman...... S... J.60 225.

30 5. Direct Direct Direct Direct Indirect Indirect Indirect 42 48 39 40 40 40 40 Pieces 2........00 100.. Wages Payable....... Employees Income Tax Payable.00 + $70....08 757... Factory Overhead ($18......400.E.... Hill...80 880....20 2............80 3. Wanous.....20 880....161..R....00 + $844.....00 572....272.. Crabbe....754.... Net Earnings 632..............161..00 $5..............754.........74 E3-11 a....44/pc $800/wk $1...400.R....80 $88..600..36 64.E........ Work in Process ($756.........40 + $800..00)..... Employee Classification Hours Cooper.00 112.40 $7...600..44/pc .....30 3.....68 636..........00 100......................600........40 7...072...................00 1.800 Rate $18.90 834..30 3..22 70....00 $ 80.. Payroll..... Wilson...400........00 1.00 84..00) Payroll..000 1.00 $ 18.......00/hr 17........40 63.754......00 + $1..00 915.... Cash.........00 800.00 1........ 5.20 $572.40 $ 774....161....00 800.....00 1....20 Chapter 3 . 7....... Pendery.232..00 1....90 $834...168....00 792.H...00 70..........400/w k Regular Earnings Overtime Premium Total Earnings FICA 8% Income Tax Withheld $756...00 + $1.......00 110......00 5..........00 + $792.00 120....J....96 699..00 1......00 240.............R............00 792...888.00 128. 1... Roberts..00 $ $7.30 b.600/wk $1.......92 73..00 844.58 628......60/hr ... Wages Payable........ FICA Tax Payable.........00 $ 61.........80 + $880............754.........

....40/wk.........................................600 / 50 wks...600 $1.......000 ÷ 50 weeks = $80 **($1.................... = $38.......................... Vacation Pay Liability........... Federal Unemployment Tax Payable*.......................................000 80 40 *$4.....................45 E3-12 Work in Process.....................................45 *Federal unemployment tax = $7........ Factory Overhead (Bonus)*. Bonus Liability......... Factory Overhead.... FICA Tax Payable........................ c......................161...........61 **State unemployment tax = $7....... b............................ / 5 days) x 12 paid holidays = $1................................20 × 4% = $286............. = $1....95 572............ 930........ Holiday pay: ($800/wk.. They should be expensed over the fifty weeks that the employee actually works.......................161..................920 / 50 wks. Vacation pay: $800 x 2 wks......Chapter 3 E3-11 75 Concluded 4..... 1.................920 $1.......61 286....... = $32 / wk.......... ........................000 × 2 weeks) ÷ 50 weeks = $40 E3-13 a.. Factory Overhead (Vacation)**.90 71.. Payroll ........................ State Unemployment Tax Payable**...20 × 1% = $71.000 80 40 1.......

.00 (hourly rate) × 3..657% (bonus percentage) $15. Whelan’s total wages: $14.........00 + $....5486 (bonus rate per hour) = $337......528 Calculation of bonus percentage: 22.314% × 50% = 3.07314 or 7.5120 hourly wage for week 40 hours × $14.............528 units 308.... A..000 units 22..5120 per hour $14..6583 hourly wage for week 35 hours × $18...000 units = ..................5120 = $14..92 (total bonus for week) 2....314% 7... J.6583 = $18.00 (hourly wage) × 3......76 Chapter 3 PROBLEMS P3-1 1.............. Standard units (616 × 500)..04 (total wages for week) .......... Bush’s total wages: $18.. Actual production for week.......528 units 308. 616 hours × $.....48 (total wages for week) 3..........00 (average hourly rate) × 3.. Excess units over standard...657% (bonus) = $.5120 = $580..5486 hourly bonus rate.00 + $......657% = $.....6583 per hour $18.....6583 = $653....657% (bonus) = $.... 330.....

x $20 = $80 . LABOR TIME RECORD Record No: LTR 999 Employee Name: Vicki Barr Employee No: 036-47-2189 Employee Classification: Grade 1 Machinist Hourly Rate: $20 Week Job No. x $20 = $240 Job 2525: 24 hrs.Chapter 3 77 P 3-2 1. Su M Tu W Th F Sa Total 007 0 4 4 4 0 0 0 12 2525 0 4 4 4 6 6 0 24 Maintenance 0 0 0 0 2 2 0 4 Total 0 8 8 8 8 8 0 40 Supervisor: Mike Frye Date: June 17. Direct labor cost: Job 007: 12 hrs. x $20 = $480 Indirect labor cost: Maintenance: 4 hrs. 2005 2.

....00 $3.80 384.........00 $ 15...........................00 400.00 430........ Regular Employees Arroyo Aurilia Griffey Lopez Dunn LaRue Kearns 2.......00 845.00 10..00 475.... 2....50 318... 3...... Cash.............................20 296.............. Employees Income Tax Payable...00 $277.00 277...... Factory Overhead..00 $2...00 475...00 $200.......30 351................. Total FICA Income Tax Net Earnings) Earnings 8% 18% Earnings $ 51.00 400..70 $2...00 450....10 85.....50 93............10 3......78 Chapter 3 78 P3-3 1...........20 623.00 41.............. 2.......00 25..........10 Payroll ......... Wages Payable..00 $3..00 Idle Time (Included in Reg.70 2.. To Work in Process...465.........00 480.60 38.............00 Wages Payable..465......60 85...........60 93....310.00 645.. Supervisor....... Less: Idle time (20 hrs.........564........564......465....620.......00 480............00 450.....................00 100.............40 32...................80 351.564......................564....00 $ 645..............00* 845.00 $200.....60 38.....00 ............10 Work in Process. FICA Tax Payable............ Hours Earnings Overtim e Premium 42 45 48 48 45 42 40 $ 630...............20 $623................. Payroll.00 520.....................................60 41.....00 40...50 77...00 520.......................00 $155..00 420.50 384...............................00 $ $100....00 Chapter 3 *Total payroll. x $10)..... 477........................00 0 $3....00 40..00 34...620.....................465...10 2..............................00 $116.00 25.. 3....40 72...............

...........0000 Aurilia ..........3125 10.620..5556 10.....Chapter 3 P3-3 4..........56 $52. LaRue .39 $706.. 1 Van No....01* Total .....50 200.00 Total $971..78 260...... 3 Aurilia Griffey Lopez Dunn LaRue Kearns $105..89 $365......02 * 520.99 * 330.56 260..00 520............00 $ 475.....00 $105..... 4 Van No....00 $10.....00 520. 79 Concluded Since overtime is proportionate to regular hours chargeable to vans...... 2 Van No.. Lopez .00 330..33 260..00 300..00 158..00 475.... Including Overtime for Week 45 48 48 45 32 30 $475....... Griffey .33 247. Dunn ..50 100..56 260...39 *Answer off by .........33 82... an average labor rate...01 or .... Kearns ... Van No... 5 $105.00 474.............56 $52.00 158......00 520...... including overtime premium...8333 10.......5556 10.8333 10. Distribution of labor cost to vans using calculated average labor rate: Van No...00 $523....02 due to rounding..... can be calculated and used for distribution as follows: Total Hours Charged to Vans Total Earnings Chargeable to Vans Average Labor Rate.00 158......00 300......78 $2.56 $105..

FICA Tax Payable.........30 96.....00 78............................... 12.60 $ Pak .71 c........... FICA Tax Payable.........30 78..............00 60....00 13...00 $16........11 .71 90...00 120..495...61 Total $400..20 $ 70................. 924...28 45..........232..00 $4.........527... Factory Overhead......................... Total Classification of Wages and Salaries Earnings for Month Unemployment Taxes Federal State Tax Tax 1% 4% FICA Tax 8% Taxes Imposed on Employer Direct labor...30 $234........... $1....60 Payroll taxes on factory wages... Federal Unemployment Tax Payable. Payroll Taxes Expense—Administrative Salaries.....20 $3... Wages Payable.............500..............00 1..00 $5........00 $ 60.....00 Factory Overhead. Payroll.00 1............00 960...................00 Administrative salaries....22 11...00 60.......71 924....... Cash......572................... Federal Unemployment Tax Payable......... $88.. ..220........108.....00 1....572...... 11.......560....................00 P3-5 T W T F Wie.....232. $ 8...........463...00 Total...... $231.$ 81..........127................................627.....044.....80 Chapter 3 P3-4 1....60 $1...........50 $234.....560.. 1..00 92....................... Payroll Taxes Expense—Sales Salaries........ State Unemployment Tax Payable.....70 2.00 1................... $ 10.................000......77 90......80 2..116.....00 $13........297....................00 1...... a....... State Unemployment Tax Payable..............00 Sales salaries...00 $197.....40 648............22 924..495.........00 115.....00 $1............................90 $230.... Wages Payable..80 162..00 1........70 b..00 $ 7..00 460.......00 77...70 390.......279...................20 $ 11.....30 Sorenstam...352..........127..00 $ 60...176.. 16... 69............. 146.......00 920...... 80.... 480...........116............. Employees Income Tax Payable......00 Total payroll taxes.....054.........................60 M 85...........20 112.180... FICA Tax Payable..00 2.......80 336.00 $ 881...40 Indirect labor..00 5.........................40 79...00 10.............279.

.........375..600........... therefore......... Employees Income Tax Payable.....00 FICA Tax Payable.......... Payroll................ $193..........00 2..........................00 b.................................... Wages Payable......... Factory Overhead............. Cash........ d.......... 16....08 = $19....0% of total earnings..... or 1/2 × $3....................................... $1...... Federal Unemployment Tax Payable.......00 200.00 ÷ ........50 3........000...... Employees Income Tax Payable.........00 3....... or $775............Chapter 3 81 P3-6 1......00 800... therefore.. 10.............500 + $5.................. 1..... $775.............00 c.............800 x ......700.............13 ** $3....................................... a....................... therefore....550 equals employee portion of FICA Tax Payable (8% of total earnings)..................... FICA Tax Payable........400................... Cash.....550 ÷ ...........400............................00 * ($10......00 16...................00** 1...00 5..............................................................75 (Federal Unemployment Tax Payable) represents 1% of the total earnings.................................000.................937.75 ÷ .....400..... State Unemployment Tax Payable.800..13 2.........50 20........... FICA Tax Payable. Factory Overhead.106... Wages Payable..00 (State Unemployment Tax Payable) represents 4....... Payroll..01 = $19........ 6........................................00 10................. ........... $193................237..........100 = $1.....300...........000.............600.........00 3.......00 16.............................00 2........00* 494...... Work in Process........ Sales and Administrative Salaries................ Payroll Tax Expense (Sales and Administrative Salaries)............................................ 20.......375...................700) x .04 = $19................375 (total earnings January 1 to 15).500.

.....001..82 216...........00 650......... 8......... Factory Overhead.......50 $8......00 80..80 32.. W...022.00 399....022.00 60.......00 15.............00 9.......50 7............50 $3..........22 c.....00 490....00 $2..20 255...00 150...00 460.........608........080.....00 20........00 56.50 Income Tax Withheld Net Earnings 0 40..70 $308....00 464. Gore Lieberman Nader Kerry 2..........00 $6.........22 FICA $ 308...00 408.00 440....... 6.00 110...............489.........690.........82 Chapter 3 82 P3-7 1.50 $112..238..80 313......00 52. 1... Payroll...........20 36..............00 $ 0 0 0 50......00 $124.00 700........00 290...00 20...50 b...........00 30........750........899.............28 1..............00 1.50 322......... Carter Cheney Clinton.50 a....00 0 500.080..00 460..238......50 6...00 315..........00 120.956.....489.00 39..50 8......853...000.......00 28............00 315.50 322..00 101.. Administrative Salaries..70 236...28 $1......727.. Earnings Per Week Overtime Regular Premium Total Total Earnings Through Fortieth Week FICA Taxable Earnings $2..022...50 4.... Work in Process.122.50 7.......00 460..00 700...049......00 17....00 1....00 448.00 490...................660..........022.......50 322. Payroll...... Cash. Wages Payable.....922.00 408...00 160.796. FICA Tax Payable... Employee Bush Clinton.00 6.00 2.............00 600...50 $ $7............738..80 $ 488..00 650........00 402..454.50 $2.68 25.........00 17.....750............470.........00 180.50 Chapter 3 .080....50 $ 327.22 6..00 2... Employees Income Tax Payable...22 8. H.00 700..........80 25...060..................... Wages Payable...........50 322...

... 83 Concluded d................................. FICA Tax Payable....41 Factory Overhead...... Disability Insurance Payable.................. Factory Overhead.....Chapter 3 P3-7 3.... SUTA Tax Payable......... 70...50)] x . 294.......... FUTA Tax Payable...........................................................................................00 308...........28 20........23 40........00 ..........90* 5.. Payroll Taxes Expense— Administrative Salaries..04 = $20............50) x ..................................................90 **[Nader ($200) + Kerry ($322....00 *[Nader ($200) + Kerry ($322.....00 90...01 = $5..................................... Disability Insurance Expense— Administrative Salaries..............23** 20..................

............000 = $12...000 Total incentive bonus payment: Second 100............000 units........250 employees × 8 hours per day.000 Total hours required.......................................000 hours × $10 premium per hour...000 Overtime hours required.250..........000 units: Per-unit costs of first 100..000 4.........750.... 319...000....356.....................000 12..... Remaining 1........000........................................500........000 units @ 5 hours per unit × 85%...... $ 3........ Total.000 units × $15 per unit = $1....000 = $750..675. $93....000 .............. 2..... 3..000 units: Per-unit cost of first 100..500...000 $ 13................ $ 750.675..000 units—1/2 of $1..500......250 employees × 40 hours per week × 50 weeks...000..675...190........000 units—5 hours × $20 per hour = $100 Expected savings per unit—15% × $100 = $15 Total savings—100.000.000 3....000 hours × $20 per hour...000 Wages paid at regular rate: 4......000... Less holidays—8 holidays × 2...000 Bonus payment on second 100.... Second 100...............000 units @ 5 hours per unit.......000..000 144................500..................000 units—$100 Expected savings per unit—25% × $100 = $25 Total savings—1.............000 4.......... Hours required: First 100.000 425..500..........000 Bonus payment on remaining 1.. 4......000 units @ 5 hours per unit × 75% 500.. Remaining 1......000 Overtime premium: 319...........000 units—1/2 of $25.000 Remaining 1..........500..000 Second 100...................84 Chapter 3 P3-8 1...... 4.............000.. Less regular hours available: 2........000 Total hours required (from above).000 units.000 units × $25 per unit = $25......

.........000 × 13%.......000 Total hours................................. $ 93............ Vacation and holiday pay.......... Holiday pay—2.....................134.........000 Cost of vacation and holiday pay: 324.. 85 Concluded Hours: Vacation pay—2.....600 6......... Incentive premium.........480......................000 144................................ $ 15...........................000 13...... $ 116.............. 5......420...... $ Wages at regular rate.........000 hours × $20 per hour...... Overtime premium......000 Employer’s payroll taxes—$116......250 employees × 2 weeks × 40 hours per week..Chapter 3 P3-8 4....................480........000 6.............420.......... 324...........500................. 180..............000 3.............250...................250 employees × 8 days × 8 hours per day..............000 ..................000 Total payroll...................190....

00 0 203.00 $ 246.20 29.40 260 8.032 91.00 27. Smith 11/8 11/15 Chapter 3 11/29 .464 600 0 48. Ford 11/8 $300 280 $12.828.40 246.00 229.00 237.080 8.60 320 300 11.20 203.00 262.80 11/15 11/22 11/29 M.20 1.00 278.580 $300 280 $24.20 34.870 290 23.00 229.40 $30.40 28.60 32. Gibson 11/8 11/15 11/22 11/29 H.20 280 8.890 280 22.60 24.432 93. EMPLOYEE EARNINGS RECORDS Week Ending Weekly Gross Accumulated Gross Earnings Weekly Earnings Subject to FICA Withholdings FICA Income Tax Tax Net Amount Paid Earning s H. Grant 11/8 11/15 11/22 W.820 12.00 28.80 280 12.740 280 22.40 21.60 221.60 28.00 229.00 213.00 30.00 32.00 229.460 340 27.00 22.032 2.40 28.610 260 20.60 2.00 262.120 320 300 25.780.350 280 270 22.00 340 12.80 1.80 320 13.80 26.60 290 12.86 Chapter 3 86 P3-9 1.190 320 25.40 280 270 8.300 12.

00 870 36.60 87.Chapter 3 87 2.20 1.360 800 760 64.00 85.032 97.828.20 850 35.00 697.600 34.40 11/22 11/29 D.080 870 69.210 850 68.80 80.828.00 713.80 2.20 1.00 76.00 623.528 0 0 203.032 95.80 800 760 33.00 656.496 0 0 203. Washington 11/8 11/15 11/22 11/29 .00 60.

..20 $ 377......00 $ 30.00 28...20 0 68.....20 76.....20 85....... W....80 623...80 Week Ending 11/15: H. D.... Ford .782. Grant .... Ford ..60 24..........80 656..00 270.. 237.................263. Gibson…………………………...00 30.....00 27....00 34.........00 $ 184...032..00 $3.... Gibson ..00 340...00 800..642.. H.........828.00 $ 25. H.........174.......20 Week Ending 11/22: H.. Washington.00 $ $3......... Ford ....00 850.................032.60 262..20 80.....20 $ 3.........00 280..............00 300............. D......00 64. W.... 262.......60 229.772.........00 280............00 2......40 21.....00 $ $3.......00 28.......00 1....00 $ 378.... Washington.....00 870.....60 221.....00 26... Smith ....40 0 69.....20 87. Ford.60 $ 32...40 22. Grant ..20 $ 320.....00 $ 373..00 $ 139............40 229........00 $ 290.40 ...80 $ 28... Smith .80 213.00 2.........60 22.....88 P3-9 Chapter 3 Continued 2.........40 25......80 1..00 $ $3...255......00 203....00 $ 3.................00 203... Washington..... M..20 $ 3...40 246..20 20.................80 697.......00 2..........828.20 $ 3........................60 Week Ending 11/29: H.00 $ 140....00 $ 29......... H...... Gibson .... M. W.. Grant....00 2.........00 $ 22......00 $ 128........ M..........032.80 $ 364.. W....... PAYROLL RECORD Employee’s Name Week Ending 11/8: H.....00 $ 246........ Smith .......60 1................ 229..00 760...20 278.....00 203..732.149... M.......00 32........ Washington................... D.....00 $ 23.00 260. Gibson ............ Smith... Gross Earnings Withholdings FICA Income Tax Tax Net Amount Paid $ 300....00 203.....00 280.828......00 229.......40 1......... Grant ........00 22...60 48...............00 $ 24..........00 28..... D..80 $ 280..032....00 320.....780..00 0 60.........80 27......... H.80 713.

00 2. 20— Week Ending Dr.00 $3.00 $ 3.032.00 760.Chapter 3 89 P3-9 Continued 3.00 $2.00 2.128.032. Factory Overhead (Indirect Labor) Dr.00 $14.00 3. Work in Process (Direct Labor) Dr.772.280.782.732. Admin.032.00 2.00 $8.00 $ 800. Payroll (Total) 11/8 11/15 11/22 11/29 $ 900. Labor Cost Summary For the Month Ended November 30.928. Salaries (Office) Cr.00 850.00 3.00 880.00 870.00 Total $3.00 890.00 850.642.00 3.032.520.00 .

...................................80 3...... Nov............................................. 3......................80 14................263..... 30 d................. *** * Employer shares of Washington’s FICA tax ** Gibson $200 × 1% = $2 *** Gibson $200 × 4% = $8 8. 15 b........ Cash...................... Wages Payable........732............................... Wages Payable.................00 3.80 128.....80 Work in Process............................................20 3. c.........128............ FICA Tax Payable............................................. a..00 Payroll............... FUTA Tax Payable.. 3...........00 373........................ a........ Nov....174... 339................ Employees Income Tax Payable........................782.............520........... 3.80 3...............00 Wages Payable...................... Nov... Payroll........40 * 592..642............. Nov........80 364.263.... 3..... 29 b............ 8 b............... Wages Payable..............................255.........00 Wages Payable................................. Cash..60 Payroll......00 .....174........................174...255.............60 3.149.255.... Employees Income Tax Payable........... a.........20 377........................... a.........263..........928................ 3................00 Factory Overhead..............60 184....... Cash... 3.00 ** SUTA Tax Payable.. Nov.................20 3..........00 3... 3...............00 139......................................149..............................20 3....... FICA Tax Payable............... FICA Tax Payable.. Wages Payable.......90 Chapter 3 P3-9 4............................20 3.............00 262.............. Factory Overhead... FICA Tax Payable...................................80 Payroll.... 30 Payroll. Concluded Nov......772.280......... Employees Income Tax Payable...........60 140................................. FICA Tax Payable............................ Administrative Salaries................ Employees Income Tax Payable.....149.00 2...............00 378.............................. 3.....00 Wages Payable..... 22 b........ Cash.........00 Wages Payable..............00 8........... 3.... Payroll Taxes Expense— Administrative Salaries...

.......00 21.......00 Payroll............... Taxable Earnings Items Factory wages Administrative salaries Sales salaries 2.....00 6..........010..........00 2..........................................450...00 59...456...250.320.....................00 $3...........450..080......00 7...........00 18......00 $49.........00 Wages Payable.00 55......00 59........ Employees Income Tax Payable (10%).............00$3.......00 54....924..250.....00 340.....000...........00 Payroll..............924.00 720...........800... Wages Payable....... 26...320...........00 5..00 2...........366........................ FICA Tax Payable...250....00 Wages Payable..........200......300...00 Payroll................... Wages Payable................................................... Employees Income Tax Payable. Cash.. FICA Tax Payable (8%)...720......924........................ 21............................500. 54......... Wages Payable.... FICA Tax Payable....................304......Chapter 3 91 P3-10 1...... 59..00 180.. 68....... FICA Tax Payable......... Jan...........000.....000..............................00 Wages Payable....00 1..... .......00 $377...00 Wages Payable....... .......00 34..................................00 $15................ 55......630...............000.....00 2........00 ...........000.......00 6.............00 2......00 55.......340..00 1.. Wages Payable..........360....00$42......00 5......................00 Payroll...............................00 54............. 7 7 14 14 15 15 21 21 FICA Tax 8% Federal Unemployment Tax 1% State Unemployment Tax 4% Total Payroll Taxes $325...770.............. Cash....00 4...............00$26....160... 66.............366.000........... Employees Income Tax Payable.....080....... Cash.................. Cash....00$ 13...00 $30...... 72...........420........................366.320....00 21.....820..............................00 5.......................... Employees Income Tax Payable.............450..000..600.440...........

.................. Factory Overhead................936...................................................800 ...............000 281........00 60. 60..............00 30.....770.............................................00 4...... 28 28 31 31 31 31 3...........92 Chapter 3 P3-10 Concluded Jan...............................................00 2.......00 42...00 21...................... 22........ 302....... Miscellaneous Selling Expense..00 Work in Process....500 Total.....00 Wages earned and accrued as of January 31: Direct labor...............000.................000................ State Unemployment Tax Payable.....000....................................... Wages Payable.....320........................... $ 325.... 18............ 74.....................00 Wages Payable............................. Cash............. Miscellaneous Administrative Expense...................... Less wages paid during month...844.....160.......................... Cash.....................500 22.......................................... Indirect labor..600...... January 31......................... $ 43.......00 Wages Payable..420.844..............00 7....................200..... Employees Income Tax Payable....00 Administrative Salaries.... FICA Tax Payable.00 2...........844.....00 15................................. Payroll............200 Accrued wages..................................... Employees Income Tax Payable...00 5.......................500...........00 Sales Salaries.......00 60.340...........00 Factory Overhead........ FICA Tax Payable......... Federal Unemployment Tax Payable.....080..........420.....00 2............................................... 34......................320.........00 3..........250....................................................00 21. 377............00 Payroll............080........................ $ 302......00 Payroll. FICA Tax Payable............000.. 26........ Wages Payable............................500...............320.. 21....................................................

......000 **($200...........000 ..............000 ÷ 5 days) × 5 days = $200............000 × 2 weeks) ÷ 50 weeks = $8..... Bonus Liability............ Holiday Pay Liability..........000 8........ Vacation Pay Liability.000 Payroll…………………………………………………… 200.000 *$400........................000 $200...................000 4..000 ÷ 50 weeks = $4. 8..............000 8...000 8.........000 ÷ 50 weeks = $8.........000 ***($200................000/week Work in Process………………………………………140...................000 Factory Overhead (Indirect Labor)………………… 60..........Chapter 3 93 P3-11 Factory Overhead (Bonus)*……………………………………… Factory Overhead (Vacation Pay)**............ Factory Overhead (Holiday Pay)***..................................................000 4............

..................... Factory Overhead...............500 $23...................700 hours) @ $10................ These costs should be charged to the weekend jobs that were rush orders............ Based on the facts given........... 2.000 $433..................... however.... Weekends: (400 hours + 300 hours) @ $20............200 hours + 1............ Overtime premium—weekdays (1....... Computation of Work in Process: Weekdays: (40............................................................563 4...000 14...... (The bonus could.................... The plant manager is also incorrect in charging the bonus to administrative expenses since factory workers’ bonuses are part of the cost of production.............000 23......300 $419. however.........000 $14......... Computation of Factory Overhead: Indirect labor........... Factory Overhead...........300 × 1% = $4.....................800 8.......) The Saturday and Sunday overtime should be charged to the rush-order jobs that were worked on during the weekends.... Payroll... the most appropriate procedure would be to charge the weekday overtime and bonus to factory overhead...563 433.563 .................... Computation of Accrued Bonus Liability: $456.....300 456....... Work in Process. The plant manager is incorrect in allocating weekday overtime to particular jobs...... The controller is correct in assuming that the weekday overtime and the bonus are factory overhead costs and should be spread over all production for the period...............700 × $5). be added to each direct laborer’s hourly rate and traced to the specific job....... because the overtime was required due to scheduling more work than could be done during a regular workday...94 Chapter 3 MINI-CASE 1 1....... it would be improper to charge Saturday and Sunday overtime to factory overhead.. The 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 except selling and administrative expenses should be included in the cost of the product.. All production during the period should bear part of the additional cost..... Bonus Liability.300 4. Under the circumstances.. It would be improper to charge jobs that happen to be in production during the overtime period.....................

3. only. Yes. Because such a modified wage plan provides a base hourly wage regardless of the level of production. salespersons in retail stores. 2. and insurance agents are examples of workers whose compensation is often either on a salary plus commission or all-commission basis. .Chapter 3 95 MINI-CASE 2 1. thereby maximizing their earnings and company production and revenues. real estate agents. a serious shortcoming of such plans is that they may encourage employees to sacrifice quality for quantity. the compensation may be a combination of hourly-rate and piece-rate plans. A piece-rate plan provides an incentive for employees to produce a high level of output. One solution is to adopt a piece-rate plan based on the production of good units. incentive compensation plans are often used in service businesses. For example. it may cause employees to feel less pressure to maximize quantity at the expense of quality. No. However.

2. • Complete any distribution forms required by your former employer. • Expect and plan for the unexpected. . 3. • Ask your former employer to write your Fidelity IRA account number on your distribution check and make it payable to Fidelity Management Trust Company. • Create a realistic budget. • Don’t withdraw too much too soon. the three-step approach to a successful retirement is: • Plan for your goal---Saving enough? Do you have a plan for living in retirement? • Explore investment options---How can you help your money grow---and last as long as you’ll need it? • Stay on track---Make sure your plan stays up to date. • Stretch your salary. The steps that you will need to follow after you open a Rollover IRA are: • Notify your former employer that you are rolling over your assets to a Fidelity IRA. According to Fidelity. • Create your own income stream. • Mix and match the smartest moves for you. • Confirm when your former employer will distribute the funds.96 Chapter 3 INTERNET EXERCISE 1. • Save now for more later • Make your asset mix match you. • Stay on track. Fidelity’s 10 Smart Moves for Retirement are: • Consider maxing out and catching up in your 401(k) and IRA.