ACTIVITY 3: DIRECT LABOR

Problem 1. Overtime premium

Victory Manufacturing Company produces a variety of products. The firm operates 24 hours per
day with three daily work shifts. The first shift workers receive regular pay. The second shift
receive 10% pay premium, and the third shifts receive 20% pay premium. In addition, the firm pays
overtime premium of 50% based on the pay rate for the first shifts. All labor premium are included
in overhead.

The actual payroll for the month is as follows:

Total wages for 16,000 hours        ?
Wage rate for the 1st shift             P35 per hour
Total regular hours worked            15,000

The total amount of total payroll for the period is P630,000

1st shift 5,000 hrs x 35 175,000

2nd shift 5,000 hrs x 35 x 110% 192,500
3rd shift 5,000 hrs x 35 x 120% 210,000
Overtime premium 1,000 hrs x 35 x 150% 52,500
Total 630,000
Problem 2. LCC company uses only one account for all materials and adopts the perpetual inventory
system. The accounting records for 2020 of LCC Co. showed the following: Decreased in raw
materials inventory, P450,000; Increased in finished goods inventory, P150,000; Total debits to
Raw Materials; P1,290,000; Total factory payroll, P600,000; Applied FOH, P900,000, excluding
indirect labor of P50,000 and indirect materials of P45,000; Freight in, P20,000, decrease in WIP
inventory, P90,000.

The total factory costs amounted to P2,455,000

Direct Materials Direct Labor FOH

Total Debits to raw materials: P1,290,000 Total Factory payroll: Applied FOH:
Less: Decrease in raw materials (450,000) 600,000 P900,000
Add: Freight-in 20,000 Indirect labor:
TOTAL DIRECT MATERIALS: 860,000 50,000
Indirect materials:
45,000
TOTAL FOH:
P995,000

Total factory cost = Direct Materials + Direct Labor + Factory overhead

Direct Materials: 860,000
Direct Labor: 600,000
Factory overhead: 995,000
TOTAL FACTORY COSTS P2,455,000