CHAPTER 5:

LABOR AC C O U N T IN G –
CONTROL AN D C O ST IN G
U ND E RS TA N D A N D KNOW:
LE AR N ER S H O U L D BE ABLE TO
THE L A BOR COST.
E CIF IC A L L Y T H E
A JO R C O S T E LEMENTS SP
• ONE OF T H E M
: T IM E K E EP IN G AN D PAYROLL
IN G S Y S TE M F O R LABOR COST
• THE ACCOUN T
O P RO D U CTION.
R C O S T S T
ED U R E S; A N D C H A RGING LABO
PROC

 
TIMEKEEPING PROCEDURES
INVOLVES TWO MAJOR PROCEDURES IN LABOR COSTING:
• ACCUMULATION OF THE TOTAL NUMBER OF HOURS WORKED
BY EACH EMPLOYEE SO THAT THEIR EARNINGS CAN BE
COMPUTED;
• DETERMINATION HOW THE LABOR HOURS WERE SPENT SO
THAT DISTRIBUTION CAN BE MADE IN THE COST RECORDS.
TIME CARDS

•SOMETIMES CALLED CLOCK CARD.

•THIS IS THE MOST COMMON FORM OF EMPLOYEE’S
ATTENDANCE RECORD.
PAYROLL PROCEDURES
THE NUMBER OF HOURS WORKED EACH DAY OF EMPLOYEES UNDER THE HOURLY RATE
IS TRANSFERRED FROM THE TIME CARD TO THE PAYROLL REGISTER (PAYROLL
SHEET).

WEEKLY FACTORY PAYROLL REGISTER

• AFTER COMPUTING THE GROSS EARNINGS OF EACH EMPLOYEE, APPROPRIATE

DEDUCTIONS ARE MADE AND ENTERED IN THE PROPER COLUMNS AND THE
NET PAY FOR EACH EMPLOYEE IS DETERMINED.
SEMI-MONTHLY FACTORY PAYROLL

• USED TO RECORD SALARIES OF SOME FACTORY SUPERVISORS AND

MANAGERS WHO EARNED FIXED MONTHLY SALARIES PAYABLE IN TWO
INSTALLMENTS.
DEDUCTIONS FROM EMPLOYEE’S
EARNINGS
• INCOME TAXES
• SSS CONTRIBUTIONS
• PHIL. HEALTH CONTRIBUTIONS
• PAG-IBIG FUND OR DEVELOPMENT MUTUAL FUND CONTRIBUTIONS
• EMPLOYER’S CONTRIBUTIONS
RECORDING PAYROLL FROM THE PAYROLL
REGISTER
FACTORY PAYROLL XXX
WITHHOLDING TAX PAYABLE XXX
SSS CONTRIBUTIONS PAYABLE XXX
PHIL. HEALTH CONTRIBUTIONS PAYABLE XXX
PAG-IBIG CONTRIBUTIONS PAYABLE XXX
PAYROLL PAYABLE XXX
PAYING THE PAYROLL
PAYROLL PAYABLE XXX
VOUCHERS PAYABLE XXX
 
VOUCHERS PAYABLE XXX
CASH IN BANK XXX
CHARGING LABOR COSTS INTO PRODUCTION
TIME TICKETS
• SOMETIMES CALLED JOB TIME CARDS, ARE USED TO SHOW HOW TIME USED ON
SPECIFIC JOBS.
• THE FORMAT OF TIME TICKETS VARIES DEPENDING ON THE ORGANIZATION OF THE
COMPANY AND THE EXTENT TO WHICH THE COMPANY’S OPERATIONS ARE
COMPUTERIZED.
 

UNEARNED WAGES
• LABOR COSTS THAT HAVE BEEN INCURRED BUT NOT YET BEEN PAID ARE TO BE ACCRUED.
• PRODUCTION IS CHARGED WITH ALL LABOR COSTS IN THE PERIOD IN WHICH THEY ARE
INCURRED.
RECORDING LABOR COSTS

WORK IN PROCESS XXX

MANUFACTURING OVERHEAD CONTROL XXX
FACTORY PAYROLL XXX
EMPLOYER’S CONTRIBUTIONS
• EMPLOYER’S CONTRIBUTION RELATING TO FACTORY WORKERS ARE CHARGED TO
MANUFACTURING OVERHEAD CONTROL ACCOUNT.

• EMPLOYER’S CONTRIBUTIONS RELATING TO OTHER EMPLOYEES ARE CHARGED TO

EXPENSE.

LABOR-RELATED COSTS
• FRINGE BENEFITS – ARE EXPENDITURES MADE BY THE EMPLOYER ON BEHALF OF
THE EMPLOYEES. THESE COSTS ARE CHARGED TO MOH ACCOUNT. HOWEVER, FEW
COMPANIES TREAT FRINGE BENEFITS RELATED TO DIRECT LABOR AS PART OF DIRECT
LABOR COST RATHER THAN MOH.
OVERTIME PREMIUM COMPUTATION
ILLUSTRATION:

• AN EMPLOYEE IS REQUIRED TO WORK BEYOND 8 HOURS ON ORDINARY WORKING

DAYS. THE EMPLOYEE IS TO BE PAID AN ADDITIONAL FOR OVERTIME WORK IN AN
AMOUNT EQUAL TO HIS REGULAR RATE PLUS FIFTY PERCENT THEREOF. IF THE
EMPLOYEE IS PAID P30 PER HOUR FOR REGULAR WORKING DAY, HIS OVERTIME
HOURLY RATE IS COMPUTED AS FOLLOWS: 
REGULAR HOURLY RATE P30
OVERTIME PREMIUM PAY RATE 15
OVERTIME HOURLY RATE P 45
IF THE EMPLOYEE WORKED FOR 12 HOURS IN AN ORDINARY
DAY, HIS GROSS EARNINGS FOR THE DAY WOULD BE:

EARNINGS AT REGULAR RATE (8 HRS. X P30) P240

OVERTIME (4 HRS. X P30) 120
OVERTIME PREMIUM (4 HRS. X P15) 60
GROSS EARNINGS P420
OVERTIME PREMIUM MAY BE CHARGED TO: (JOURNAL
ENTRY)
• SPECIFIC JOB
WORK IN PROCESS XXX
FACTORY PAYROLL XXX
 

• MANUFACTURING OVERHEAD CONTROL

WORK IN PROCESS XXX
MANUFACTURING OVERHEAD CONTROL XXX
FACTORY PAYROLL XXX 
ILLUSTRATION 1:
May Company is preparing its monthly payroll for August. The following data apply to Jane Dew,
the chief accountant:

a. Year to date, through July:

Gross payroll P144,000
SSS premiums withheld 9,360
Income tax withheld 19,200
Take home pay P115,440

b. Jane’s August earnings were P18,000. Income tax to be withheld is P2,400.

The following rates are available for payroll distribution:

Withholding tax 1%
SSS Contributions 10% (40% employee; 60% employer)
Employee’s Compensation
2% (employer only)
Contributions
Phil. Health Contribution 2% (50% employee; 50% employer)
PAG-IBIG Contributions 3% (50% employee; 50% employer)

Required:
1. The journal entry to record labor incurrence for August.
2. The journal entry to record labor distribution and the related employer’s contribution.
THE JOURNAL ENTRY TO RECORD LABOR INCURRENCE
FOR AUGUST.
FACTORY PAYROLL 18,000
WITHHOLDING TAX PAYABLE 2,400
SSS CONTRIBUTION PAYABLE 720 PHIL.
HEALTH CONTRIBUTION PAYABLE 180
PAG-IBIG CONTRIBUTION PAYABLE 270
PAYROLL PAYABLE 14,430
THE JOURNAL ENTRY TO RECORD LABOR DISTRIBUTION
AND THE RELATED EMPLOYER’S CONTRIBUTION.
(2-A) ADMINISTRATIVE EXPENSES 18,000
FACTORY PAYROLL 18,000
 
(2-B) ADMINISTRATIVE EXPENSES 1,890
SSS CONTRIBUTION PAYABLE 1,080
ECC PAYABLE 360
PHIL. HEALTH CONTRIBUTION PAYABLE 180
PAG-IBIG CONTRIBUTION PAYABLE 270
ILLUSTRATION 2:
Boruto, an employee of the Naruto Company is paid P300 per hour for a regular week for 40
hours. During the week ended November 14, the employee worked for 48 hours and earned time
and a half for overtime hours.

Required:
1. Journal entry to record the labor cost if the overtime premium is charged to the jobs worked
on during the overtime hours.
Journal entry to record the labor cost if the overtime premium is not charged to specific jobs.
JOURNAL ENTRY TO RECORD THE LABOR COST IF THE OVERTIME PREMIUM IS
CHARGED TO THE JOBS WORKED ON DURING THE OVERTIME HOURS.

(1) WORK IN PROCESS 10,400

FACTORY PAYROLL 10,400

TO RECORD LABOR COST FOR:

REGULAR PAY (48 HOURS X P200) P 9,600

OVERTIME PAY (8 HOURS X P100) 800

TOTAL P10,400
JOURNAL ENTRY TO RECORD THE LABOR COST IF THE
OVERTIME PREMIUM IS NOT CHARGED TO SPECIFIC JOBS.

WORK IN PROCESS (REGULAR PAY) 9,600

FACTORY OVERHEAD CONTROL (OVERTIME PAY) 800
FACTORY PAYROLL 10,400
ILLUSTRATION 3:
Alex Morada, a production worker earns P27,600 per month and the company pay the worker a
year-end bonus equivalent to one month’s wages. Morada is also entitled to a half-month paid
vacation payments be treated as indirect costs and accrued during the 11 ½ months the employee
is at work.

Required: The journal entry to record and distribute the labor cost of the production for the
month.
(A) FACTORY PAYROLL 27,600
PAYROLL PAYABLE 27,600
 
(B) WORK IN PROCESS 27,600
FACTORY PAYROLL 27,600
 
(C) FACTORY OVERHEAD CONTROL 3,600
ESTIMATED LIABILITY FOR BONUS 2,400
ESTIMATED LIABILITY FOR VACATION 1,200

BONUS: P27,600 / 11.5 MONTHS = P2,400

VACATION: P27,600 / 2) P13,800 / 11.5 MONTHS = P1,200.
ILLUSTRATION 4:
SALLY, A PRODUCTION EMPLOYEE IS PAID P180 PER HOUR FOR A REGULAR WORK OF 40
HOURS. DURING THE WEEK ENDED MARCH 23, SALLY WORKED 50 HOURS AND EARNED
TIME AND A HALF FOR OVERTIME HOURS.

REQUIRED:
1. WHAT IS THE AMOUNT THAT SHOULD BE CHARGED TO WORK IN PROCESS ACCOUNT
IF THE OVERTIME PREMIUM IS CHARGED TO PRODUCTION WORKED DURING THE
OVERTIME HOURS?
2. WHAT IS THE AMOUNT THAT SHOULD BE CHARGED TO WORK IN PROCESS ACCOUNT,
IF THE OVERTIME PREMIUM IS CHARGED TO MANUFACTURING OVERHEAD?
“ GREAT THINGS NEVER COME FROM COMFORT
ZONES.
------
PUSH YOURSELF, BECAUSE NO ONE ELSE IS
GOING TO DO IT FOR YOU. ”
END OF CHAPTER