ASSIGNMENT: Accounting for Labor

Kenneth Shen A. Mangual BSA-2B

1. Management of the Robinson Manufacturing Company requests that you calculate the effect of two
different wage payment plans upon employee earnings and also on the unit labor cost of Product B12.

(1) The hourly rate is $15.00.

(2) The labor rate per piece of Part 1567, if the employee is paid on a piece-rate basis, is $.50.

Ten pieces of Part 1567 are required for one unit of Product B12. The plant works a 5-day week and an
8-hour day, totaling 40 hours per week. No overtime premium pay is to be considered in your analysis.

During a selected week, the following pieces of Part 1567 were produced:

Day Part X Quantities Produced

1 180
2 240
3 300
4 150
5 200
An agreement with the union requires a minimum rate of $10.00 per clock hour be paid to employees.

a. Calculate the labor cost each day of the week for an employee under:

(1) the hourly-rate plan.

8 (hours per day) × $15 = $120 per day

(2) the piece-rate plan

Day Pieces Rate Earned Legal Min.* Amount Paid
1 180 x $ .50 $ 90 $ 80 $ 90
2 240 x .50 120 80 120
3 300 x .50 150 80 150
4 150 x .50 75 80 80
5 200 x .50 100 80 100
*8 (hours per day) × $10.00 = $80 per day.

b. If the company could anticipate a steady production level of 250 units of Part 1567 each day, which
plan would you recommend to the company’s management? Why?

If the company were to produce 250 units of Part 1567 each day, the hourly rate would result in a cost
of $.48 per unit ($120 / 250), while the piece rate would cost $.50 for each unit produced. The hourly
rate should be recommended because of the lower cost per unit.
Becky Graham earns $15 per hour for up to 300 units of production per eight-hour day. If she produces
more than 300 pieces per day, she will receive an additional piece rate of $.40 per unit. A summary of
her work week follows:

Hours Worked Pieces Finished

Monday 8 350
Tuesday 8 280
Wednesday 8 320
Thursday 8 290
Friday 8 300

(a) Determine Graham’s earnings for each day and for the week.

Graham’s earnings are calculated as follows:

Hours Pieces Earnings @ Earnings @ Make-up Payroll

Worked Finished $15.00/hr $.40/unit Guarantee Earnings
Monday 8 350 $120 $140 $140
Tuesday 8 280 120 112 $8 120
Wednesday 8 320 120 128 128
Thursday 8 290 120 116 4 120
Friday 8 300 120 120 120
$600 $616 $12 $628

(b) Prepare the journal entry to distribute the payroll for the week.

Work in Process 616

Factory Overhead 12
Payroll 628

3. A weekly payroll summary made from labor time records shows the following data for TMC Company:

Employee Classification Marital Hourly Regular Hours Overtime

Status Rate Hours
C. Collier Direct Married $15 40 2
S. Brown Direct Single $13 40 6
E. Anglin Direct Single $15 40
R. Kues Indirect Married $12 40 3
A. Studer Indirect Married $16 38
Other information:
a. Overtime is payable at one-and-a-half times the regular rate of pay for an employee and is distributed
to all jobs worked on during the period.
b. Income taxes withheld (FIT) are $50 for employees with $610 or more of gross income in the period
and $40 for those who earn less.
c. Each married employee contributes $60 for health insurance; single employees contribute $30.
d. FICA taxes are 8% on the first $100,000 of gross pay; FUTA and SUTA are 1% and 4%, respectively, on
the first $8,000 of gross pay. Since this is January, none of the employees have reached the limitations.

Required:
1. Determine the net pay of each employee.

Regular Overtime Gross FIT FICA Health Net

Earnings Earnings Earnings W/H W/H Insurance Pay
C. Collier 630.00 15.00 645.00 50.00 51.60 60.00 483.40
S. Brown 598.00 39.00 637.00 50.00 50.96 30.00 506.04
E. Anglin 600.00 600.00 40.00 48.00 30.00 482.00
R. Kues 516.00 18.00 534.00 40.00 42.72 60.00 391.28
A. Studer 608.00 ____ 608.00 40.00 48.64 60.00 459.36
2,952.00 72.00 3,024.00 220.00 241.92 240.00 2,322.08

2. Prepare the journal entries for the following:

a. Recording the payroll.

Payroll 3,024.00
FICA Taxes Payable 241.92
Employee Income Taxes Withheld 220.00
Health Insurance Payable 240.00
Wages Payable 2,322.08

b. Paying the payroll.

Wages Payable 2,322.08

Cash 2,322.08

c. Distributing the payroll.

Work In Process (630 + 598 + 600) 1,828.00

Factory Overhead (516 + 608 + 72) 1,196.00
Payroll 3,024.00
4. Payroll records for selected employees of Tomco Industries for the forty-sixth week of the year are as
follows:

Employee Classification Salary or wage Hours Income Gross Wages

based on 40 Worked Tax through 45th
hour week Withheld week
R. Shuey President $3,000 40 $600 $135,000
K. Dye Sales Manager 2,500 40 500 98,000
J. Rudnick Direct Labor 800 42 100 4,500
L. Guzzino Direct Labor 600 46 150 28,000
A. Busse Indirect Labor 400 44 80 7,800

Employees are paid time-and-a-half for overtime.

Employer payroll tax rates are as follows:

FICA: 8% of first $100,000 of salary or wages
FUTA: 1% of first $8,000 of salary or wages
SUTA: 4% of first $8,000 of salary or wages

Calculate:
(a) Total gross payroll for the selected employees

Employee Regular Wages Overtime Total Computations

Or Salary Premium
Shuey $3,000 $3,000
Dye 2,500 2,500
Rudnick 840 20 860 800/40=20; 42x20=840; 2x10=20
Guzzino 690 45 735 600/40=15; 46x15=690; 6x7.50=45
Busse 440 20 460 400/40=10; 44x10=440; 4x5=20
Total $7,555

(b) Total employer payroll taxes for the selected employees.

Employee Cumulative Earnings Cumulative FICA FUTA SUTA Total

Earnings Week 46 Earnings
Week 45 Week 46
Shuey $135,000 $3,000 $138,000 $ - $ - $ - $ -
Dye 98,000 2,500 100,500 160.00 - - 160.00
Rudnick 4,500 860 5,360 68.80 8.60 34.40 111.80
Guzzino 28,000 735 28,735 58.80 - - 58.80
Busse 7,800 460 8,260 36.80 2.00 8.00 46.80
Total $324.40 $10.60 $42.40 $377.40

Computations:
Shuey has already exceeded the FICA limit of $100,000 and the unemployment tax limit of $8,000, so
the company does not have any payroll tax expense.

Dye has already exceeded the unemployment tax limit of $8,000. This week’s payroll pushes his
cumulative earnings above $100,000, but the portion between $98,000 and $100,000 or $2,000 is
subject to the 8% FICA tax of $160.00.

Rudnick has not hit either limit as yet, so his total earnings for the week of $860 are subject to all
taxes. FICA - $860 x 8% = $68.80; FUTA - $860 x 1% = $8.60; SUTA $860 x 4% = $34.40.

Guzzino has exceeded the $8,000 limit for unemployment taxes, but his earnings are subject to FICA
taxes - $735 x 8% = $58.80

Busse’s earnings are subject to FICA ($460 x 8% = $36.80), but only $200 of his earnings are subject to
the unemployment taxes ($8,000 limit - $7,800). FUTA - $200 x 1% = $2.00; SUTA - $200 x 4% = $8.

5. Jerrod Sampson is paid $10 an hour for 40 hours a week, with time-and-a-half for overtime and
double-time for Sundays and holidays. Overtime premium is charged to Factory Overhead.

Using the labor-time record below:

a. Compute Jerrod’s total earnings for the week.

SUTA = 4%, FUTA = 1%, FICA = 8%, FIT = 10%

Sun Mon Tues Wed Thur Fri Sat Total

F28 4 4 4 4 4 4 4 28
M14 3 2 5 6 16
Idle 1 1 4 6
Total 4 8 7 9 8 10 4 50

Jerrod’s total earnings = $570

Regular Pay $500 (50 hours x $10)

Premium $ 70 (4 hours x $10) + (6 hours x $5)

b. Present the journal entry to distribute Jerrod’s total earnings.

Work in Process* 440

Factory Overhead** 130
 Payroll 570

* Work in Process: (28 hours x $10 ) + (16 hours x $10 ) = $440

** Factory Overhead: (6 hours x $10) + $70 overtime premium = $130

6. The Wagner Company’s Schedule of Earnings and Payroll Taxes for May is summarized as follows:

Gross FICA FUTA SUTA Total

Earnings 8% 1% 4% Taxes
Non-Factory Employees:
Sales $ 8,000 $ 640 $ 80 $ 320 $ 1,040
Administrative 9,000 720 90 360 1,170
17,000 1,360 170 680 2,210
Factory Employees:

Direct Labor: 32,000 2,560 320 1,280 4,160

Regular 5,000 400 50 200 650
Overtime Premium 3,000 240 30 120 390
Idle time 18,000 1,440 180 720 2,340
Indirect Labor 58,000 4,640 580 2,320 7,540
Total $75,000 $6,000 $750 $3,000 $9,750

(a) Prepare the journal entry to distribute payroll under each of the following scenarios:

(1) Overtime resulted from priority scheduling of Job 3bX for which the company received a rush order.

Sales Salaries 8,000

Administrative Salaries 9,000
Work in Process (32,000 + 5,000) 37,000
Factory Overhead (18,000 + 3,000) 21,000
Payroll 75,000

Since the overtime resulted from a rush order, the overtime premium would be charged to the job
(Work in Process). Idle time is charged to Factory Overhead as it cannot be allocated to any one job.

(2) Overtime resulted from random scheduling of jobs

Sales Salaries 8,000

Administrative Salaries 9,000
Work in Process 32,000
Factory Overhead (18,000 + 3,000 + 5,000) 26,000
Payroll 75,000
Since overtime was the result of random scheduling of jobs, the overtime premium would be charged
to Factory Overhead.

(b) Prepare the journal entry to record and distribute the employer’s payroll taxes

Factory Overhead 7,540

Payroll Tax Expense - Sales Salaries 1,040
Payroll Tax Expense - Admin. Salaries 1,170
FICA Tax Payable 6,000
Federal Unemployment Tax Payable 750
State Unemployment Tax Payable 3,000

7. The following payroll summary is prepared for the Sothern Manufacturing Company for the week
ending March 29:

Direct labor:
Job No. 200 $10,300
Job No. 201 7,000
Job No. 202 6,500
Total direct labor $23,800
Indirect labor 6,200
Total gross payroll $30,000

Payroll taxes and insurance are to be computed as follows:

Employee's Share Employer's Share

Federal income tax withheld $4,300
State unemployment tax 5.0%
Federal unemployment tax 1.0%
FICA tax 8.0% 8.0%
Disability insurance .5% .25%
Workmen's compensation insurance 2.0%

Prepare the general journal entries to:

a. Record the payroll.

Payroll 30,000
FICA Tax Payable (30,000 x 8%) 2,400
Federal Income Tax Withheld 4,300
Disability Insurance Withheld (30,000 x .5%) 150
Wages Payable (30,000 - 2,400 - 4,300 - 150) 23,150
To record payroll.
b. Pay the payroll.

Wages Payable 23,150

Cash 23,150

c. Distribute the payroll to the appropriate accounts.

Work in Process 23,800

Factory Overhead (Indirect Labor) 6,200
Payroll 30,000
To distribute payroll.

d. Record the employer's share of payroll tax expense. (All of the employees work in the factory.)

Factory Overhead 4,875

FICA Tax Payable (30,000 x 8%) 2,400
Disability Insurance Withheld (30,000 x .25%) 75
State Unemployment Tax Payable (30,000 x 5%) 1,500
Federal Unemployment Tax Payable (30,000 x 1%) 300
Workmen's Compensation
Insurance Payable (30,000 x 2%) 600
To record employer's share of payroll associated
costs.

8. Tyler Jacob is paid $15 per hour for a 40-hour work week with time-and-a-half for overtime, which is
not charged to specific jobs. For the week of March 4 - 10, Tyler’s labor time record was as follows:

Mon Tues Wed Thur Fri Sat Total

Job B280 8 5 6 10 10 2 41
Machine maintenance __ 4 2 __ __ 1 7
Total 8 9 8 10 10 3 48

Other Information:
Tyler’s year-to-date wages as of March 3 were $7,500. He contributes $20 weekly for his health
insurance premiums

Current tax rates in effect are: FIT withholding rate - 10%; FICA - 8% on the first $100,000 of wages;
SUTA - 4% on the first $8,000 of wages; and FUTA - 1% on the first $8,000 of wages
(a) Calculate Tyler’s gross and net pay

Gross pay:
48 hours x $15.00/hr. $720.00
8 hours x $ 7.50/hr. (15.00/.5) 60.00
Total gross pay $780.00
Deductions:
FIT Withholding $780 x 10% $ 78.00
FICA - Employee portion $780 x 8% 62.40
Health insurance premium 20.00
Total deductions $ 160.40
Net Pay $ 619.60

(b) Prepare the journal entries necessary to

(1) Record Tyler’s payroll

Payroll 780.00
Employees’ Income Tax Payable 78.00
FICA Tax Payable 62.40
Health Insurance Premium Payable 20.00
Wages Payable 619.60
To record payroll
(2) Pay Tyler’s payroll

Work in Process (41 hrs. x $15) 615.00

Factory Overhead (7 hrs. x $15) + $60 (Overtime) 165.00
Payroll 780.00
To distribute payroll

(3) Distribute Tyler’s payroll to the appropriate accounts

Wages Payable 619.60

Cash 619.60
To record payment of payroll

(c) Calculate the employer’s payroll taxes and prepare the journal entry to record them employer’s
portion of payroll taxes.

Year-to-date payroll, March 3 $7,500

Earnings March 4 -10 780
Year-to-date payroll, March 10 $8,280
Subject to FUTA and SUTA 8,000
Not subject to FUTA and SUTA $ 280

Amount of earnings March 4 - 10 subject to unemployment taxes = $780 - 280 = $500

Employer’s payroll taxes:

FICA (per above) $62.40
SUTA ($500 x 4%) 20.00
FUTA ($500 x 1%) 5.00

Factory Overhead 87.40

FICA Tax Payable 62.40
State Unemployment Tax Payable 20.00
Federal Unemployment Tax Payable 5.00
To record employer’s payroll taxes

9. The Tidle Manufacturing Company uses a job order cost system. Factory wages are paid on a straight
hourly basis with indirect labor getting $8.50 an hour and direct labor getting $10.00 an hour.

During the week of January 7, the following hours were worked:

Direct Indirect
Cutting Department 2,200 250
Splicing Department 2,400 200
Sanding Department 1,850 125
Joining Department 4,250 325

Salaries and wages are paid weekly, with administrative salaries totaling $16,500 and salesperson's
salaries totaling $12,200.

The following deductions are to be considered:

FICA tax 8.0%

Federal income tax 12.0%
State income tax 2.0%
Federal unemployment tax 1.0%
State unemployment tax 5.0%

Prepare journal entries to record:

a. The payroll.

Payroll* 143,350.00
FICA Tax Payable ($143,350 x 8% ) 11,468.00
Federal Income Tax Withheld ($143,350 x 12%) 17,202.00
 State Income Tax Payable ($143,350 x 2% ) 2,867.00
Salaries and Wages Payable 111,813.00
To record payroll.
*(10,700 x $10) + (900 x $8.50) + $16,500 + $12,200

b. The payment of the payroll.

Salaries and Wages Payable 111,813.00

Cash 111,813.00
To pay payroll.

c. The payroll distribution.

Work in Process (10,700 x $10 ) 107,000.00

Factory Overhead (900 x $8.50) 7,650.00
Administrative Salaries 16,500.00
Sales Salaries 12,200.00
Payroll 143,350.00
To distribute payroll.

d. The employer's payroll tax expense.

Factory Overhead* 16,051.00

Payroll Tax Expense**--
Sales and Administrative Salaries 4,018.00
FICA Tax Payable ($143,350 x 8%) 11,468.00
Federal Unemployment Tax Payable ($143,350 x 1%) 1,433.50
State Unemployment Tax Payable ($143,350 x 5%) 7,167.50
To record employer's share of payroll taxes.

*($107,000 + $7,650) x (8% + 1% + 5%) = $16,051

**($16,500 + $12,200) x (8% + 1% + 5%) = $4,018

10.  Patrick Poplin is a factory worker at Ingram Inc. earning $15.00 per hour.  Patrick is eligible for ten
paid holidays and three weeks vacation and is paid “time-and-a-half” for overtime.  He is also eligible for
a $700 bonus at the end of the year.  Patrick’s earnings so far this year are $7,000.

Tax rates are as follows:

Employee income tax 15% on all earnings
FICA 8% on first $100,000 of earnings
FUTA 1% on first $8,000 of earnings
SUTA 4% on first $8,000 of earnings
Assuming Patrick worked 48 hours this week, calculate the total expense to Ingram Inc. for this week’s
wages, payroll taxes and fringe benefits.

Wages: Total
Regular wages $27 x 46 hr. $1,242.00
Overtime premium $13.50 x 6 hr. 81.00 $1,323.00

Employer payroll tax *

FICA $1,323 x 8% 105.84

Fringe benefits **
Vacation $27 x 40 hours = 1,080 x 6 = 6,480/46 = 140.87
Holiday 5 days paid = 1,080/46 23.48
$ 1,593.19

* Astor has already exceeded the unemployment tax limits.

** Since Astor has 6 weeks of vacation, he is earning his benefits over the 46 weeks he works.