MODCOS1

ACCOUNTING FOR LABOR

AY 1st Term 2016-2017

Summa r y of Accounting for Labor

I. Recording Pa yroll
a. Recording the numbers of hours used in total and by job.
b. Recording the quantit y produced by the workers
c. Anal yzing the hours used by employe es
d. Allocation of pa yroll costs to jobs and factor y overhead
e. Preparation of Pa yroll, Vouchers, Pa yme nt, Allocation, and Employer ’s Pa yr oll taxes
II. Pa yroll Computation
a. Gross Pa y
i. Wages
1. Hourl y- Rate Plan (number of hours worked)
2. Piece-Rate Plan (based on the number of output)
3. Modified Wage Plan (Mini mum rate + above quota rate)
4. Dail y Rate Plan
ii. Salaries (Weekl y or Monthl y)
iii. Bonuses and other allowances
b. Pa yroll Taxes and other deductions
i. SSS Contribution
ii. Philhealth Contribution
iii. HDMF Contribution
iv. Withholding Taxes
v. Others (Union Dues, Loans, VALE, Retirement, etc.)
c. Employe r ’s Share
i. SSS Contribution
ii. Philhealth Contribution
iii. HDMF Contribution
III. Labor Classification
a. Product Costs
i. Direct Labor
ii. Indirect Labor
iii. Labor Overhead (Waiting time, Overtime Premium, Shift Pre mium, Make-up
pa y, Employer s’ Pa yr oll Taxes, Holida y and Vacation Pa y)
b. Period Costs
i. Marketing and Sales (Selling)
ii. General and Administrative
IV. Other General Matters
a. Collective Bargaining Agreement (CBA)
b. Labor Code Provisions
c. Controlling Labor Costs
i. Time Keeping (Clock Cards, Ti me Tickers, and Production Reports)
ii. Pa yroll (Pa yroll records, e mploye e ’s earning records, pa yroll summa ries)

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 Problem 1 – Overtime
Assuming an employee regularly earns P 75.00 per hour for an 8-hour a day. If called upon to
work more than 8 hours in a working day, the company will have to pay overtime premium
for hours worked in excess of 8 hours.

Required:
1. Assuming the employee works 12 hours on Monday, and is paid 50% overtime
premium (time and a half), the earnings to be charged for direct labor and overhead,
respectively, would be?
2. Assuming the employee is paid a premium of 100% (double time), the earning to be
charged to direct labor and overhead would be?
___________________________________________________________________________________

Problem 2 – Idle time

Gee is employed by B Company. Last week he worked 34 hours assembling one of the
company’s products and was idle 6 hours due to material shortages. B’s employees are
engaged at their workstations for a normal 40-hour week. Gee is paid P58.25 per hour.

Required:
Allocate Gee’s earnings for the week between direct labor and manufacturing overhead.
__________________________________________________________________________________

Problem 3 – Gross Earnings

From the following data, compute the regular, overtime premium and the total gross earnings
of each employee at Highland Flooring, for the week ended May 7, 2014. All employees are
paid at the regular hourly rate for the first 40 hours worked during the week. The rate for
hours worked in excess of 40 is 50% (time and half) of the regular rate. The rate for hours
worked on Sunday is 70% of the regular rate.

Hours Worked
Employee Sunday Monday Tuesday Wednesday Thursday Friday Saturday Hourly
rate
M. Tan - 8 8 7 9 8 - P60.00
J. Go 6 8 8 8 8 10 - P65.00
H. Yu - 8 8 10 8 8 4 P58.25
G. Chan - 8 8 8 8 9 4 P75.00

___________________________________________________________________________________

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 Problem 4 - Journal Entries
The GZ Manufacturing Company pays employees every two weeks. Monday, May 1, is the
beginning of a new payroll period. The following payroll summary for the period May 1-14
is prepared by the payroll department and forwarded to accounting for recording:

Particulars Factory Sales and Admin. Total

Employees Employees
Gross earnings P 125,000 P 25,000 P 150,000
Withholding and Deductions:
Income taxes P 11,000 P 2,400 P 13,400
SSS Premiums 3,330 950 4,280
Philhealth Contribution 375 150 525
HDMF 2,000 600 2,600
Net Earnings P 108,295 P 20,900 P 129,195

The factory payroll is 70% direct laborer while 30% are indirect. The following schedule
provides the information necessary to record the employer ’s payroll taxes for the period.

SSS premiums Philhealth HDMF

Factory Payroll 4,067 375 2,000
Selling and Administrative 4,540 150 600

Required:
Provide the journal entries for the following:
1. Authorization of the payroll voucher
2. Payment of the net earnings to employees
3. Allocation of the payroll
4. Employer ’s payroll taxes
___________________________________________________________________________________

Problem 5 – Gross Earnings and Journal Entries

A weekly payroll summary made from time tickers shows the following data:

Number of Hours Worked

Employee Classification Rate/Hour
Regular Overtime
Reyes, Mario Direct P66 40 2
Cruz, Roy Direct 66 40 3
Tomas, June Direct 75 40 4
Salazar, Ben Indirect 60 40
Diaz, Jake Indirect 60 40

Overtime is payable at 50% (time and half) of the regular rate pay for an employee.

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 Required:
1. Determine the gross pay for each employee
2. Prepare the journal entries for
a. Recording the payroll
b. Payment of the payroll
c. Allocation of the payroll
___________________________________________________________________________________

Problem 6 – Gross Earnings

Samson Company recently adopted an incentive plan. Factory workers are paid P8.50 per
unit with a guaranteed minimum wages of P 2,000 per week. Following is a report on
employees’ productivity for the week ending April 19, 2014. All employees worked the full
40-hour week.

WEEKLY SUMMARY
EMPLOYEE’S NAME UNITS PRODUCED
1. S. Chan 240
2. M. Briones 286
3. G. David 275
4. J. Vergara 240
5. J. Garcia 225
6. N. Gabriel 285

Required:
1. Compute each employee’s gross pay.
2. What amount should be charged to work-in process?
3. What amount should be charged to Factory overhead?
___________________________________________________________________________________

Problem 7-Payroll Computation

An order was accepted by the GT Trailer Company for five trailers. The time tickets and
clock cards for the week ended June 30 shows the following:

Time-Tickers – Hour Distribution

Employee’s Exemption Previous Trailer
Trailer Trailer Trailer Trailer Trailer
Name status earnings Hours
1 2 3 4 5
J. Matthew S P13,200 42 All time spent in supervising
P. Roxas ME1 14,400 45 10 10 10 10 5
T. Peter ME 12,870 48 24 24
M. Dantes S 12,870 48 24 24
A. Tan ME 13,200 45 15 15 15
R. Vinzon ME1 12,540 42 24 18
M. Rivera ME 13,200 40 20 20

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 All employees are paid P110 per hour, except Roxas, who receives P120 per hour. All
overtime premium pay is chargeable to the factory overhead control. All employees including
Roxas received time and a half (50%) for overtime hours. The previous earnings were not
subject to deductions, such payroll deductions are made on the last pay for the month.

Required:
1. Calculate the total payroll and total net earnings for the week.
2. Prepare entries to record the following:
a. Recording the payroll
b. Payment of the payroll
c. Allocation of the payroll
d. Employer ’s Payroll taxes

Required:
3. Calculate the total payroll and total net earnings for the week.
4. Prepare entries to record the following:
a. Recording the payroll
b. Payment of the payroll
c. Allocation of the payroll
d. Employer ’s Payroll taxes
___________________________________________________________________________________

Problem 8 – Vacation and Bonus Pay

Alex Reyes, a production worker earns P27,600 per month and the company pay the worker
a year-end bonus equivalent to one month’s wages. Reyes is also entitled to a half-month
paid vacation per year. Company policy provides that bonus and vacation payments be
treated as indirect costs and accrued during the 11.5 months the employee is at work.

Required:
Journal entry to record and distribute the labor cost of the production for the month.
___________________________________________________________________________________
Problem 9 – Journalize Payroll Transaction
Aquino Machines, Inc. presented the following transaction for the month of October 2013.
Note that the company pays its hourly employees twice a month.

Oct. 15 The payroll for the first half of October for the hourly factory workers totaled
P32,500. Deductions: Social Security taxes, P2,015; PhilHealth taxes, P487;
Pag-ibig contribution, P487 and Income taxes, P4,900.
15 Issued a voucher to pay the net payroll.
15 Recorded payment of the voucher.
30 The payroll for the second half of October for the hourly factory workers totaled
P82,300. Deductions: Social Security taxes, P2,058; PhilHealth taxes P498; Pag-
ibig contribution, P498, and Income taxes, P5,120.
30 Issued a voucher to pay the net payroll.
30 Record payment of the voucher.

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 30 Recorded distribution of the factory wages earned during the entire month of
October. The summary of factory wages showed total direct labor at P46,240 and
total indirect labor at P19,460.
30 Recorded employer contribution liability for the month as follows: Social
Security taxes, P4,073; PhilHealth taxes, P985 and Pag-ibig contribution,
P1,579.

Required: Prepare journal entries to record the above transactions.

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