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Accounting For Factory Labor

Accounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory Labor

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333 views17 pages

Accounting For Factory Labor

Accounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory LaborAccounting For Factory Labor

Uploaded by

Karl Wilson Gonzales
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Accounting for Factory

Labor

SEPTEMBER 21, 2021


Learning Outcomes
After this chapter, the student will be able to:
1. Know the different types of labor remuneration
2. Differentiate direct from indirect labor
3. Account for overtime, shift and night premium
4. Compute the correct deductions from payroll like absences, tardiness,
SSS, WHT, Philhealth and Pag-IBIG.
5. Prepare factory payroll
6. Distribute factory payroll to proper accounts
7. Journalize factory payroll
Labor is the physical or mental effort expended in manufacturing a
product. Labor is the price paid for using human resources.

Labor cost- wages paid to production workers; made on an hourly, daily


or piecework basis.

Salaries – are fixed payments made regularly for a managerial or


clerical services.
The accounting system of a manufacturer must include the
following procedures for recording payroll costs.
1. Recording the numbers of hours used in total and by job
2. Recording the quantity produced by workers
3. Analyzing the hours used by employees to determine how time is
to be charged.
4. Allocation of payroll costs to jobs and factory overhead accounts.
5. Preparation of the payroll, including computation and recording of
the employees gross earnings, deductions and net earnings.
Labor Code of the Philippines: Provisions of PD 442

Normal hours of work: the normal hours of work of any employee shall not exceed eight
(8) hours a day. The law also provides for not less than 60 minutes time-off for regular
meals.

Compensation of rest day, Sunday or holiday work. Employees have right to a weekly
rest day.
- Additional 30% of regular wage: if employee is permitted to work on his scheduled
rest day.
- Additional 30% of regular wage: if work performed on any special non working
holiday
- Additional 50% of regular wage: who works on a special day which falls on his/her rest
day.
Labor Code of the Philippines: Provisions of PD 442
Right to Holiday pay:
- An employee who does not work on a regular holiday is entitled to be paid 100% of salary for that
day.
- An employee who works on a regular holiday is entitled to 200% of salary for that day.
- An employee who works more than 8 hours (overtime work) on a holiday shall be paid an additional 30% of
the hourly rate.
- An employee who works on a regular holiday which falls on his/her rest day shall be paid an additional 30% of
his/her daily rate of 200%.
- An employee who works for more than 8 hours(overtime) during a regular holiday which falls on his/her rest
day, shall be paid an additional 30% of his/her hourly rate.

Night Shift Differential: every employee shall be paid a night shift differential of not less than 10% of his regular
wage for each hour of work performed between ten o’clock in the evening and six o’clock in the morning.

Overtime work: additional pay of 25% of the hourly rate for work done in excess of 8 hours
Deductions from Employee’s Earnings
• Withholding Taxes/ Income Taxes – The amount withheld is in
accordance with a table issued by the BIR and shall be remitted monthly
to the BIR. The employer acts as a collection agent for the government
• SSS Contributions – Employer must deduct a certain amount from the
employee’s salaries during the month in accordance with the table issued
by the SSS. The employer must also pay with respect to the covered
employee his corresponding share in accordance with the same table.
• Philhealth Contribution- an amount representing health insurance which
is automatically deducted from employees.
• Pag-IBIG Fund Contribution – a member-employee is deducted a certain
percentage of his monthly basic salary.
Examples:

Compute the withholding tax and mandatory contributions (SSS,


Philhealth & Pag-IBIG) of an employee with a monthly compensation of
P50,000.
*Withholding Tax
Gross Compensation 50,000.00 Gross Compensation 50,000.00
*
Less: Less Mandatory Contributions - 1,975.00
Withholding Tax * - 6,173.00 Taxable Compensation 48,025.00
Less: Compensation Range - 33,333.00
SSS - 1,125.00
Excess 14,692.00
Philhealth - 750.00
Pag-IBIG - 100.00 Predetermined Tax 2,500.00
Net Pay 41,852.00 Add: Tax on the excess (14,692 x 25%) 3,673.00
Total Monthly Withhodling Tax 6,173.00
LG Company operates its factory on a two-shift basis and pays a late shift differential
of 15% above the regular wage of P65 per hour. The company also pays a premium of
10% for overtime work. During the year, work occurred in the following categories:
Number of hours worked during the regular shift 10,000
Number of overtime hours for regular shift workers 300
Number of hours worked during the late shift 6,000.
Determine the amount of total payroll and distribute the total payroll to Work in
Process and factory overhead.

Regular Pay (10,000 x P65) 650,000.00


Work in Process 1,059,500.00
Overtime Pay (300 x P65) 19,500.00
Late Shift (6,000 x P65) 390,000.00 Manufacturing Overhead 60,450.00
OT Premium (300 x6.5) 1,950.00 Gross Factory Payroll 1,119,950.00
Late Shift Premium (6,000 x P9.75) 58,500.00

Gross Factory Payroll 1,119,950.00


Special Problem in Factory Labor
• Piece Rate with guaranteed wage
Queen Betti Company recently adopted an incentive plan. Factory
workers are paid P7.50 per unit with a guaranteed minimum wage of
P2,000 per week. Following is a report on employees’ productivity for
the week ending August 27, 2021. All employees worked the full 40-
hour week.
Weekly Summary
Employee Name Units Produced Required:
Geronima 240 1. Compute each employee’s gross pay.
2. What amount should be charged to work in process
Amalia 286
3. What amount should be charged to factory overhead
Edgardo 275
Rizalina 240
Belinda 225
Sylvia 285
Labor Charged to To be paid to the
Employee Name WIP worker Factory Overhead
Geronima 1,800.00 2,000.00 200.00
Amalia 2,145.00 2,145.00
Edgardo 2,062.50 2,062.50
Rizalina 1,800.00 2,000.00 200.00
Belinda 1,687.50 2,000.00 312.50
Sylvia 2,137.50 2,137.50

11,632.50 12,345.00 712.50

The work-in process account is charged with the number of units produced multiplied by the piece rate. If a worker produces
Less than the amount of guaranteed wage, the difference is charged to factory overhead account.

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