AAT Level 3Labour

Overtime/Equivalent Units/Bookkeeping

AAT Level 3

Labour Costs – Assessment Criteria

2.1S Record cost information for material, labour and expenses in accordance with the organisation’s costing procedures

2.2S Analyse cost information for material, labour and expenses in accordance with the organisation’s costing procedures

Cost Card

Direct Materials+Direct Labour+Direct Expenses

= PRIME COST+ Production Overheads

= PRODUCTION COST+ Non Production Overheads

= TOTAL COST

Start with 3 DIRECT costs

Then 2 lots of OVERHEADS

Direct & Indirect Labour

Cleggs Ltd build and sell vintage bicycles. Define the terms below and give examples based on Cleggs Ltd

Can be associated with the product

Cannot be associated with the product

Time Keeping Records

How do you record your time/activity at work?

Methods of Payment

Methods of Payment

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14      249 Paul (B) 49                 250 George (A) 2      250 John (D) 107      250 Ringo (C) 74                 Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Cost the two jobs

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20  

249 Paul (B) 49

     

250 George (A) 2

250 John (D) 107

250 Ringo (C) 74

     Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49

     

250 George (A) 2

250 John (D) 107

250 Ringo (C) 74

         Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40

       

250 George (A) 2

250 John (D) 107

250 Ringo (C) 74

       Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

   

250 George (A) 2

250 John (D) 107

250 Ringo (C) 74

   Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2

250 John (D) 107

250 Ringo (C) 74

     Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   

250 John (D) 107  

250 Ringo (C) 74  

         Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107

250 Ringo (C) 74

     Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  

250 Ringo (C) 74  

           Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74

     Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74 7.20

       Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74 7.20  532.80  

         Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74 7.20  532.80  

          1298.20 Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74 7.20  532.80  

          1298.20 Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity

Job Employee HoursHourly basic rate

Total per employee Job total

249 George (A) 14  8.20 114.80   

249 Paul (B) 49  7.40 362.60   

           477.40

250 George (A) 2 8.20   16.40  

250 John (D) 107 7.00  749.00  

250 Ringo (C) 74 7.20  532.80  

          1298.20 Rates of pay:Grade Basic rateA £8.20B £7.40C £7.20D £7.00

You have been given the following information from the timekeeping records of Billie Jeans:

Activity – Time Rate

The EXTRA amount paid over

and above the normal rate, for overtime hours

OvertimeOvertime Payment Overtime Premium

The TOTAL amount paid for hours worked

above the normal contracted hours

Employee paid time + half for overtime

Overtime payment Overtime premium(i.e. time AND half) (i.e. the ‘half’)

OvertimeEmployee paid time + half for overtime

Overtime payment Overtime premium(i.e. time AND half) (i.e. the ‘half’)

David is paid £8.20 per hour for a standard 40 hour week. Last week he worked 45 hours.

What is the gross pay showing OT payment?

Basic hours 40 x £8.20 = £328.00Overtime PAYMENT 5 X (£8.20 X 1.5) £61.50

£389.50

What is the gross pay showing the OT premium?

Basic hours 45 x £8.20 £369.00Overtime PREMIUM 5 x (£8.20 x 0.5) £20.50

£389.50

Activity - OvertimeEmployee paid time + half for overtime

Overtime payment Overtime premium(i.e. time AND half) (i.e. the ‘half’)

Nick is paid as follows:

Basic pay for 6 hours shift each day from Monday – FridayAdditional hours from Monday – Friday are paid at time + half

Saturday contracted to work 3 hours for basic pay with extra hours paid a t double time

Sunday hours are all paid at double time

Use template provided

Employees weekly timesheet for week ending 12 December

Name: Nick Brown Cost Centre Machining

Employee Number: Y4791 Basic pay per hour £12

Hours spent on:

Day ProductionIndirect

work NotesBasic Pay£

Overtime premium

Total pay £

Monday 6 21-3 cleaning machinery      

Tuesday 2 49-1 training

course      

Wednesday 8          

Thursday 6          

Friday 6 1

2-3 Health & Safety

training      

Saturday 6          

Sunday 3          

Total 37 7        

Activity - NicolaNicola works for Highland Knits operating one of their industrial knitting machines. She is works from 9am to 5pm with one hour for lunch. She earns £7.50 per hour. Overtime hours are paid at time + quarter. Complete the table below:

Answer next slide

In your notebooks

Activity - Nicola

60.00

8 hours x £7.50

1.88

Overtime is:Time + ¼ Overtime Premium is £7.50 ÷ 4 = 1 x £1.875 – rounded to £1.88

61.88

Nicola works for Highland Knits operating one of their industrial knitting machines. She is works from 9am to 5pm with one hour for lunch. She earns £7.50 per hour. Overtime hours are paid at time + quarter. Complete the table below:

Practice Activity Bolyn Ltd(see OT sheet)

Answer next slide

Practice Activity Bolyn Ltd(Answer)Bolyn Ltd

Anne

To be used later

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours

Long PJ 5 1.5 hours

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Draw in your notebooks

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours

Long PJ 5 1.5 hours

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Short PJ6 item x 2 hours x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Short PJ6 item x 2 hours x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Long PJ5 item x 1.5 hours x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Long PJ5 item x 1.5 hours x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour

Nightshirts 6 2 hours

Total for week 26

Onesies12 item x 1 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours

Total for week 26

Onesies12 item x 1 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours

Total for week 26

Onesies12 item x 1 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours

Total for week 26

Nightshirts6 item x 2 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours 90.00

Total for week 26

Nightshirts6 item x 2 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours 90.00

Total for week 26

Nightshirts6 item x 2 hour x Rate £7.50 p/h

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours 90.00

Total for week 26

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours 90.00

Total for week 26

Paid per unit usually based on a specified time to complete

Example: Nigel Garage works for Kip U who design and sell nightwear. He is paid £7.50 per standard hour of production. His production levels for week 26 are shown in the table below. Calculate the total amount earned per item and his gross pay for the week.

Item Number produced

Standard time allowed per unit

Amount Earned

£

Short PJ 6 2 hours 90.00

Long PJ 5 1.5 hours 56.25

Onesies 12 1 hour 90.00

Nightshirts 6 2 hours 90.00

Total for week 26

326.25

Methods of Payment

ExampleStandard rate per hour £4.50Guaranteed minimum per week 35 hours

Actual production: 10 units @3 hours per unit. Calculate the weekly pay.

10 units x 3 hours = 30 hours pay30 hours x £4.50 = £135 < GMPSo pay for the week is £157.50

ActivityStandard rate per unit £3.00Guaranteed wage per 8 hour day£28.00

Monday 12 unitsTuesday 14 unitsWednesday9 unitsThursday 14 unitsFriday 8 units

Calculate the weekly wage:Answer next slide

ActivityStandard rate per unit £3.00Guaranteed wage per 8 hour day £28.00

Monday 12 units 12 x £3 = £36.00Tuesday 14 units 14 x £3 = £42.00Wednesday9 units 9 x £3 = £27.00Thursday 14 units 14 x £3 = £42.00Friday 8 units 8 x £3 = £24.00

Calculate the weekly wage: £176.00(£36 + £42 + £28 + £42 + £28)

Methods of PaymentDay rate based on hours worked

PLUSBonus based on quantity produced or time saved

Example – Nick

Day rate £4.50 x 8.5 = £38.25Std time for 15 units is 15 x 40/60 = 10 hoursTime taken = 8.5 hours

Time saving = 1.5 hoursBonus = 1.5 x £4.50 x 60% £4.05Pay for the day = £38.25 + £4.05 = £42.30

Hours worked – 8.5 Hourly rate is £4.50

Units take 40 minutes eachBonus rate is 60% of hourly rate for each hour savedCalculate pay for the day.

Activity – EdEd has worked 7.5 hours and produced 60 units. His hourly rate is £10.00 and a bonus of £5 per hour is paid for time saved. Standard time for 6 units is 1 hour.Calculate pay for the day.

Answer on next slide

Activity – Ed

Day rate £10 x 7.5 = £75.00Std time for 60 units = 10 hoursTime taken = 7.5 hours

Time saving = 2.5 hoursBonus = 2.5 x £5 = £12.50Pay for the day = £75 + £12.50 = £87.50

Ed has worked 7.5 hours and produced 60 units. His hourly rate is £10.00 and a bonus of £5 per hour is paid for time saved. Standard time for 6 units is 1 hour.Calculate pay for the day.

Equivalent UnitsGoods that are work in progress for materials &

labourYou produce marmalade6000kg produced and sent to be bottled.1000kg are WIP (40%) for LabourCalculate the total equivalent units

Equivalent Units

6000kg

400kg

1000kg x 40%

6400kg

Goods that are work in progress for materials & labourYou produce marmalade

6000kg produced and sent to be bottled.1000kg are WIP (40%) for LabourCalculate the total equivalent units

Example - CED Ltd(See sheet)

CED Ltd have forecast the following information for next week: The piecework rate will be £0.60 per completed unit. The target for production is 2500 units and a bonus, equal to 40% of the piecework rate, is payable for equivalent units of production in excess of this. 2700 units will be complete next week and the closing work in progress is expected to be 50 units, which will be 50% complete with regard to labour. No opening work in progress was expected at the start of the week. Calculate the EUP with regard to labour for next week. What will the bonus payable (£)?

We need to pick out the relevant information

Summary of information for CED Ltd

Piecework rate = 60p PER COMPLETED UNIT

Bonus rate = 40% of 60p for units >2500 = 24p2700 units will be complete next week

Closing WIP 50 units x 50% completeEquivalent to 25 complete units (50 x 50%)

2700 + 25 = 2725 less 2500 = 225 over target

So bonus is 225 x 24p = £54

Production target is 2500 units

Worked example(See sheet)

£3.70£7.40

74.00

51.80

59.20

51.80

66.60

303.40

11.10

0

3.70

0

7.40

22.20

85.10

51.80

62.90

51.80

74.00

325.60

Katherine Aragon

Worked Example continued:Equivalent Units

are:500 ltrs x 60% = 300

2800 litres

168.00

Bonus Payable:2800 ltrs x 0.06 = 168.00

325.60

168.00

493.60

2500 + 300 =

Bookkeeping for Labour Costs

Bookkeeping for Labour Costs

Wages Control (WAC)

Gross Wages (GW Expense)

Total cost of employing staffHow its distributed

Total cost of employing staff

Bookkeeping for Labour Costs

Wages Control (WAC)

Wages Month/Year £XXX

WIP

Gross Wages (GW Expense)

This may be split between direct &

indirect, production & non production

Production OH (Indirect)

(Direct)

Non Production OH (Indirect)

Employer NI

Employer Pension Cont.

Total cost of employing staff

Bank (Net Pay)

HMRC (EE & ER NI + PAYE)

Pension Cont. EE & ER

Other payments made on behalf of EE

How its distributed

Bookkeeping for Labour CostsWages Control (WAC)

WIP - Direct

Production OH (ID)

Non Production OH (ID)

Employer NIEmployer Pension Cont.

Bank (Net Pay)

HMRC (EE & ER NI + PAYE)

Pension Cont. EE & ER

Other pmts made on behalf of EE

WIP

Production OH

Non Production OH

X

X

X

How its distributed

Total cost of employing staff

Worked Example

Bank

82500Wages CONTROL Account

82500

PAYE & NI deductions 27500

27500

Wages CONTROL Account

Wages CONTROL Account

84700

84700

Wages CONTROL Account

25300

25300

WIP (Direct Labour)

Production OH (Indirect)

Remember the Wages Control is always one side of the journal

Activity

WIP (Direct) 220000Production (Indirect) 58000

Non production (Indirect) 2000

Bank 200000HMRC Payable 50000Welfare 30000

280000

280000

WIP 220000

Wages Control Account 220000

Wages Control Account 58000

Wages Control Account 2000

Production Overheads 58000

Non Production Overheads 2000

Wages Control Account 200000

Bank (Net Pay) 200000Wages Control Account 50000

HMRC Payable 50000Wages Control Account 30000

Welfare 30000

Practice Activities(See sheet)