Paul Clark is employed by Aerotech Products and assembles a component part for one of the company’s product lines. He is paid $14 per hour for regular time and time and a half (i.e., $21 per hour) for all work in excess of 40 hours per week.
1. Assume that during a given week Paul in idle for five hours due to machine breakdowns and that he is idle for four more hours due to material shortages. No overtime is recorded for the week. Allocate Paul’s wages for the week between direct labor cost and manufacturing overhead cost.
2. Assume that during the following week Paul works a total of 48 hours. He has no idle time for the week. Allocate Paul’s wages for the week between direct labor cost and manufacturing overhead cost.
3. Paul’s company provides an attractive package of fringe benefits for its employees. This package includes a retirement program and a health insurance program. Explain two ways that the company could handle the costs of tits direct laborers’ fringe benefits in its cost records.