Question: A department has five employees who work as a team

A department has five employees who work as a team. During productive time the team produces 20 units per hour. The employees are paid for an 8-hour day, which includes 1 hour for breaks and clean-up time. On average, 10% of the units produced are defective and must be discarded. The employees are paid as follows.
Number of ........ Pay per Hour
Employees ....... per Employee
1 ........... $28
1 ........... 20
2 ........... 16
1 ........... 12

A. A manager needs information for budgeting purposes. Calculate the direct labor cost of producing one good finished unit.
B. These employees are not paid for absences. However, when a regular crew member is absent, the company pays a temporary work agency $35 per hour for a worker to fill in. For accuracy in estimating future costs, such labor costs could be treated as follows:
1. The absence is not related to the production process, so it is recorded as part of overhead cost.
2. The cost for absences is tracked and recorded as direct labor cost.
Recommend one of these two methods to the accountant and list its advantages as part of your argument.

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  • CreatedJanuary 26, 2015
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