03 Accounting For Labor

CHAPTER 3—ACCOUNTING FOR LABOR
MULTIPLE CHOICE
1. At a plant where car doors were manufactured, all of the following would be classified as direct
labor except:
a. Machinists.
b. Assembly workers.
c. Maintenance personnel.
d. Painters.
ANS: C
Maintenance workers, while integral to the manufacturing process as they keep the machinery
maintained, are not direct laborers because they do not actually add value to the product. Machinists,
assembly workers and painters would all add value to the manufacture of a car door.
PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

NAT: IMA 2B - Cost Management TOP: AACSB - Reflective
2. All of the following personnel would be classified as indirect labor except the:
a. machinist.
b. supervisor.
c. fork lift driver.
d. plant janitor.
ANS: A
The machinist would most likely be a direct laborer. The supervisor, fork lift driver and plant janitor,
while part of the manufacturing process, do not add value to the goods being produced.
PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

3. All of the following are characteristics of hourly wage plans except:

a. They provide no extra recognition for doing more than the minimum required.
b. They are easy to apply.
c. They establish a definite rate per hour for each employee.
d. They encourage employees to sacrifice quality in order to maximize earnings.
ANS: D
Hourly wage plans pay a fixed rate per hour, so they are easy to apply, but they do not provide any
incentive to do more than what is required, nor do they encourage employees to work so fast as to
sacrifice quality.
PTS: 1 DIF: Easy REF: P. OBJ: 1

4. A wage plan based solely on an employee's quantity of production is known as a(n):

a. Modified wage plan.
b. Hourly-rate plan.
c. Incentive wage plan.
d. Piece-rate plan.
ANS: D
A piece-rate plan bases an employee's earnings strictly on the number of units produced.
NAT: IMA 2B - Cost Management TOP: AACSB - Analytic
5. Wage plans that encourage employees to work harder and earn more by producing a high level of
output are known as:
a. Modified wage plans.
b. Salary wage plans.
c. Piece-rate plans.
d. Hourly-rate plans.
ANS: C
Piece-rate plans encourage employees to work harder and earn more by producing more or by meeting
and exceeding quotas.

6. Under a modified wage plan, an employee earns $.75 for each finished unit and is guaranteed $10 per
hour as a minimum wage. If the daily quota is 100 units, on a particular day when an employee
completes 85 units and works 8 hours, the amount of the make-up guarantee will be:
a. $80.00
b. $72.25
c. $16.25
d. $5.00
ANS: C
Make-up guarantee = ($10  8 hours) - ($.75  85 pieces) = $16.25
PTS: 1 DIF: Moderate REF: P. OBJ: 1

7. Under a modified wage plan, Jim Phillips works an eight-hour day and earns $.50 for each finished
unit he produces in excess of 200 units. However, he is guaranteed $12.50 per hour as a minimum
wage. His production this week was a follows:
Monday 220 units

Tuesday 180 units
Wednesday 200 units
Thursday 200 units
Friday 190 units
How much was the make-up guarantee paid to Jim this week?
a. $10
b. $5
c. $15
d. $12.50
ANS: C
The make-up guarantee is $15 as follows:
Hours Pieces Earnings @ Earnings @ Make-up Payroll

Worked Finished $12.50/hr $.50/unit Guarantee Earnings
Monday 8 220 $100 $110 $110
Tuesday 8 180 100 90 $10 100
Wednesday 8 200 100 100 100
Thursday 8 200 100 100 100
Friday 8 190 100 95 5 100
$500 $495 $15 $510

8. Under a modified wage plan, Jim Phillips works an eight-hour day and earns $.50 for each finished
unit he produces in excess of 200 units. However, he is guaranteed $12.50 per hour as a minimum
wage. His production this week was a follows:
Monday 220 units

Tuesday 180 units
Wednesday 200 units
Thursday 200 units
Friday 190 units
What were Jim’s total earnings this week?

a. $500
b. $510
c. $495
d. $515
ANS: B
Jim’s total earnings were $510 as follows:

Monday 8 220 $100 $110 $110
Tuesday 8 180 100 90 $10 100
Wednesday 8 200 100 100 100
Thursday 8 200 100 100 100
Friday 8 190 100 95 5 100
$500 $495 $15 $510

9. Under a modified wage plan, an employee working an eight-hour day earns $.40 for each finished unit
and is guaranteed $20 per hour as a minimum wage. At what level should the daily quota be set?
a. 160 units
b. 400 units
c. 500 units
d. 640 units
ANS: B
Daily wage = $20 x 8 hours = $160.
Units made in a day to reach $160 at a rate of $.40 = $160 / $.40 = 400 units
PTS: 1 DIF: Hard REF: P. OBJ: 1

10. Idle time should be treated as follows:
a. It should be recorded along with the reason for it, and charged to Factory Overhead.
b. It should be charged to the job from which the employee took a break.
c. It should be documented and the employee should not be paid for that time.
d. It should be allocated to the various manufacturing departments and the supervisors should
decide how to handle it.
ANS: A
Idle time should be recorded and charged to Factory Overhead as it does not add value to any specific
jobs.

11. The file for each factory employee that shows the time the employee spent on each job, as well as time
spent as indirect labor is the:
a. labor time record.
b. payroll record.
c. employee’s earnings record.
d. labor cost summary.
ANS: A
Each factory employee’s time will be summarized on a labor time record. The labor cost summary
reports the total payroll distribution. The payroll record and employee’s earnings record relate to the
payment of payroll rather than the timekeeping function.

12. The departmental responsibilities of the payroll function include all of the following except:
a. Reviewing the labor hours on the time record for accuracy.
b. Summarizing the period’s payroll data.
c. Keeping a record of earnings for each employee.
d. Computing deductions and withholdings for each employee.
ANS: A
Items (b), (c), and (d) are the responsibilities of the payroll function, whereas item (a) is the
responsibility of the production supervisor.

13. The file that serves as a basis for reporting payroll information to governmental agencies and preparing
Form W-2 is the:
a. labor time record.
b. payroll record.
c. employee’s earnings record.
d. labor cost summary.
ANS: C
The employee’s earnings record is a cumulative record of employee earnings needed to calculate
payroll taxes. It also serves as the basis for reporting salary and wage information to government
agencies.

14. An analysis of total labor costs into work in process and factory overhead components is recorded on
a(n):
a. Labor cost summary.
b. Payroll record.
c. Individual production report.
d. Employee earnings record.
ANS: A
An analysis of labor costs into their work in process and factory overhead components is recorded on a
labor cost summary.

15. An employee regularly earns $12 per hour for an 8-hour day with time-and-a-half for overtime hours.
Assuming that the employee works a 10-hour day, the amount of overtime premium is:
a. $36.
b. $18.
c. $12.
d. $6.
ANS: C
Overtime premium = 2 hours  $6 = $12

16. If the amount of overtime premium is to be charged to all jobs worked on during the period as a result
of random scheduling of jobs, the debit will be to:
a. Factory Overhead.
b. Payroll.
c. Work in Process.
d. Accrued Payroll.
ANS: A
By charging the overtime premium to factory overhead, all jobs worked on during the period share the
cost.

17. David Andrews works at the Neal Company where he makes $12 per hour with “time-and-a-half” for
overtime. For the week ended January 8, David worked 45 hours as follows:
Job 417 34 hours

Job 532 11 hours
Assuming the overtime was due to priority scheduling for Job 532, how much will be charged to Job
532?
a. $147
b. $132
c. $198
d. $162
ANS: D
Regular wages 11 hrs. x $12 $132
Overtime premium 5 hrs. x $ 6 30
$162

18. The Dehl Company payroll for the first week in January was $12,000. The amount of income tax
withheld was 12 percent and the FICA, state unemployment, and federal unemployment tax rates were
8 percent, 5 percent, and 1 percent, respectively. The amount of the employees' withholding taxes are:
a. $1,680.
b. $2,400.
c. $1,440.
d. $3,120.
ANS: B
Employees' withheld taxes = (12% + 8%) $12,000 = $2,400. The state and federal unemployment
taxes are the employer’s responsibility, as is the FICA employer’s portion.

19. The payroll summary for EVB Inc. for the period August 3 - 10 is as follows:
Factory Sales and Admin.

Employees Employees Total
Gross Earnings $80,000 $25,000 $105,000
Withholding and deductions:
FICA 6,400 2,000 8,400
Income taxes 10,600 5,000 15,600
Union dues 400 - 400
Total 17,400 7,000 24,400
Net earnings $62,600 $18,000 $80,600
The entry to record payroll would be:
a. Payroll 105,000
FICA Payable 8,400
Employees Income Tax Payable 15,600
Union Dues Payable 400
Wages Payable 80,600
b. Work in Process 80,000

Factory Overhead 25,000
Payroll 105,000
c. Factory Overhead 80,000

Selling and Administrative Expense 25,000
FICA Payable 8,400
d. Payroll 105,000
ANS: A
The entry to record the payroll would be:
Payroll 105,000
FICA Payable 8,400
Cash 80,600

20. The payroll summary for EVB Inc. for the period August 3 - 10 is as follows:
Factory Sales and Admin.

Employees Employees Total
Gross Earnings $80,000 $25,000 $105,000
Withholding and deductions:
FICA 6,400 2,000 8,400
Income taxes 10,600 5,000 15,600
Union dues 400 - 400
Total 17,400 7,000 24,400
Net earnings $62,600 $18,000 $80,600
The entry to record the payment of earnings to the employees would include:
a. A debit to payroll for $105,000.

b. A credit to wages payable for $80,600.
c. A debit to wages payable for $80,600.
d. A credit to cash of $105,000.
ANS: C
The entry to record the payment of earnings to the employees would be:

Cash 80,600

21. Joel Williams works at Allentown Company where he assembles components for small appliances and
earns $16 per hour with “time-an-a-half” for overtime. During the week ended July 25, Joel worked
43 hours as follows:
Job XBRL 20.5 hours

Job FASB 14.5 hours
Idle time due to power outage 2.0 hours
Machine maintenance 6.0 hours
The amount of Joel’s wages that will be charged to the Work in Process account, assuming that the
overtime worked was due to a rush order on the FASB job is:
a. $560
b. $608
c. $584
d. $680
ANS: C
Job XBRL 20.5 hrs. x $16 $328
Job FASB 14.5 hrs. x $16 232
Overtime premium 3.0 hrs. x $ 8 24
Total $584

22. Joel Williams works at Allentown Company where he assembles components for small appliances and
earns $16 per hour with “time-an-a-half” for overtime. During the week ended July 25, Joel worked
43 hours as follows:
Job XBRL 20.5 hours

Job FASB 14.5 hours
Idle time due to power outage 2.0 hours
Machine maintenance 6.0 hours
The amount of Joel’s wages that will be charged to Factory Overhead assuming the overtime is due to
the random scheduling of jobs is:
a. $120
b. $152
c. $40
d. $128
ANS: B
Idle time 2 hrs. x $16 $ 32
Machine maintenance 6 hrs. x $16 96
Overtime premium 3 hrs. x $ 8 24
Total $152

23. Daktari Enterprises’ Schedule of Earnings and Payroll Taxes for April is as follows:
Gross FICA FUTA SUTA Total

Earnings 8% 1% 4% Taxes
Non-Factory Employees:
Sales $ 10,000 $ 800 $ 100 $ 400 $ 1,300
Administrative 7,000 560 70 280 910
17,000 1,360 170 680 2,210
Factory Employees:
Direct Labor:
Regular 80,000 6,400 800 3,200 10,400
Overtime Premium 5,000 400 50 200 650
Indirect Labor 30,000 2,400 300 1,200 3,900
115,000 9,200 1,150 4,600 14,950
Total $132,000 $10,560 $1,320 $5,280 $17,160
Assuming overtime was the result of random scheduling of jobs, the entry to distribute payroll would
include:
a. A debit to Payroll for $132,000.
b. A credit to Wages Payable for $114,800.
c. A debit to Factory Overhead for $35,000.
d. A debit to Work in Process for $85,000
ANS: C
The entry to distribute payroll would be:
Work in Process 80,000

Sales Salaries 10,000
Administrative Salaries 7,000
Payroll 132,000
If overtime is the result of random scheduling of jobs, the overtime premium is charged to Factory
Overhead along with Indirect Labor (5,000 + 30,000).

24. The Dehl Company payroll for the first week in January was $12,000. The amount of income tax
withheld was 12 percent and the FICA, state unemployment, and federal unemployment tax rates were
8 percent, 5 percent, and 1 percent, respectively. The amount of the employer's payroll taxes are:
a. $3,120.
b. $1,440.
c. $ 720.
d. $1,680.
ANS: D
Employer's payroll taxes = (8% + 5% + 1%) $12,000 = $1,680. Income tax withheld is the
responsibility of the employee, as is the employees’ portion of FICA.

25. Daktari Enterprises’ Schedule of Earnings and Payroll Taxes for April is as follows:

Sales $ 10,000 $ 800 $ 100 $ 400 $ 1,300
17,000 1,360 170 680 2,210
Factory Employees:
Direct Labor:
Regular 80,000 6,400 800 3,200 10,400
Indirect Labor 30,000 2,400 300 1,200 3,900
115,000 9,200 1,150 4,600 14,950
Total $132,000 $10,560 $1,320 $5,280 $17,160
Assuming overhead is a result of the random scheduling of jobs, the entry to record and distribute the
employer’s payroll taxes would include:
a. A debit to Factory Overhead for 14,950.
b. A debit to FICA Expense of $10,560.
c. A credit to Payroll of $132,000.
d. A debit to Work in Process for $11,050.
ANS: A
The entry to record and distribute payroll taxes would be:

Payroll Tax Expense - Sales Salaries 1,300
Payroll Tax Expense - Administrative Salaries 910
FICA Tax Payable 10,560
Federal Unemployment Tax Payable 1,320
State Unemployment Tax Payable 5,280
Generally, payroll taxes on direct labor wages are charged to Factory Overhead for the purpose of
convenience.

26. Of the following taxes, the only one that the employer pays in entirety is:
a. State income tax.
b. State unemployment tax.
c. FICA tax.
d. Federal income tax.
ANS: B
Items (a) and (d) are paid only by the wage earner, Item (c) is paid by both employer and employee,
whereas state unemployment taxes are paid only by the employer.

27. The payroll for the week ended January 8 is $15,000 with 15 percent withheld for employee income
taxes and 8 percent for FICA taxes. The total amount of taxes to be remitted by the employer for this
payroll would be:
a. $2,250.
b. $1,200.
c. $3,450.
d. $4,650.
ANS: D
The taxes remitted would be:
Employees' income taxes $2,250

Employee FICA 1,200
Employer FICA 1,200
Total $4,650
28. An accrued expense such as Wages Payable can best be described as an amount:
a. Paid and not currently matched with earnings.
b. Not paid and not currently matched with earnings.
c. Not paid and currently matched with earnings.
d. Paid and currently matched with earnings.
ANS: C
An accrued expense is best described as an unpaid expense that has been incurred in a period in which
earnings from the expense have been realized. Therefore, the expense incurred but not paid should be
matched to the earnings of the same period.

29. Toshlin issues financial statements June 30th. If payroll was $30,000 through June 30th and wages
were to be paid on July 5, what is the correct journal entry on June 30th?
Assume FIT = 15%, FICA = 8%, SUTA = 6%, FUTA = 1%,
a. No entry is required.
b. Payroll 30,000
c. Payroll 30,000
Federal Income Tax 4,500
FICA Taxes Payable 2,400
d. Payroll 30,000
Federal Income Tax 4,500
FICA Taxes Payable 2,400
SUTA 1,800
FUTA 300
ANS: B
When the financial statement date does not match the payroll period, an accrual must be made.
Employer taxes would also be recorded on June 30th. The employees’ taxes are not reported because
they do not affect the financial statements total liabilities or income. The company would however,
have to prepare an entry to record the accrual for the employer’s portion of payroll taxes.

30. Harmony Company has accrued payroll costs of $50,000 for the period May 28 - 31 as follows:
Administrative salaries $ 5,000

Sales salaries 5,000
Direct labor 30,000
Indirect labor 10,000
$50,000
Other Information:
(a) The FICA rate is 8% of the first $100,000 of wages. None of the employees has reached this
maximum.
(b) The company is responsible for state and federal unemployment taxes on the first $8,000 of wages.
All of the employees have previously reached this maximum.
(c) Payroll taxes are spread over all jobs.
What entry would be necessary to accrue payroll taxes for the period of May 28 - 31?
a. Factory Overhead 4,000

b. Payroll Tax Expense - Sales 400

Payroll Tax Expense - Administrative 400
c. Payroll Tax Expense 4,000

d. Payroll Tax Expense - Sales 400

Payroll Tax Expense - Administrative 400
ANS: D
Payroll tax expense - sales 5,000 x 8% = 400
Payroll tax expense - administrative 5,000 x 8% = 400
Factory overhead (30,000 + 10,000) x 8% = 3,200
The FICA of all factory employees would be charged to Factory Overhead as benefits are to be spread
to all jobs. If the benefits were to be charged to specific jobs, then a debit of $2,400 would be made to
Work in Process for the direct labor portion.

31. Western Industries pays employees on a weekly basis on Tuesday for the week ended the previous
Friday. Employees’ compensation is earned evenly each day over a 5-day work week. This year, April
30 fell on Thursday. Payroll costs for the week ended May 1 follow:
Non Factory:
Sales $ 5,000
Administrative 10,000
$15,000
Factory:
Direct labor $25,000
Overtime premium 2,500
$42,500
$57,500
Excluding payroll taxes, what amount should be accrued to the payroll account for the period ended
April 30?
a. $57,500
b. $46,000
c. $42,500
d. $34,000
ANS: B
If April 30 is Thursday, four days of the payroll fall in April and one in May.
$57,500 / 5 days = $11,500 per day x 4 days = $46,000

32. Western Industries pays employees on a weekly basis on Tuesday for the week ended the previous
Friday. Employees’ compensation is earned evenly each day over a 5-day work week. This year, April
30 fell on Thursday. Payroll costs for the week ended May 1 follow:
Non Factory:
Sales $ 5,000
Administrative 10,000
$15,000
Factory:
Direct labor $25,000
$42,500
$57,500
Excluding payroll taxes, how much of the accrued payroll at April 30 should be charged to Factory
Overhead?
a. $17,500
b. $26,000
c. $14,000
d. $34,000
ANS: C
If April 30 is Thursday, four days of the payroll fall in April and one in May.
Indirect labor $15,000

Total payroll relating to factory overhead $17,500
$17,500 / 5 days = $3,500 per day x 4 days = $14,000

33. The entry made in November to reverse the entry that was made to accrue October payroll would be:
a. Debit - Wages Payable

Credit - Cash
b. Debit - Wages Payable
Credit - Payroll
c. Debit - Factory Overhead

Credit - Payroll
d. Debit - Payroll
Credit - Wages Payable
ANS: B
The entry to accrue payroll is:
Debit - Payroll
Credit - Wages Payable
This entry is reversed in the following month.

34. Which of the following items relating to direct labor employees might be charged to specific jobs in
work in process rather than factory overhead?
a. Make-up guarantee
b. Idle time
c. Shift premiums
d. Fringe benefits
ANS: D
In some cases, workers’ fringe benefits, including holiday pay, are charged to jobs with the workers’
wages. However, many companies charge benefits to Factory Overhead as it is not cost effective to
charge the benefits to jobs.

35. Jay Vato works at Batwing Industries from midnight until 8:00 AM. His normal wage rate is $17 per
hour, while Ben Phillips, who does the same job from 8:00 AM until 4:00 PM makes $15 per hour.
Since Ben and Jay have the same seniority within the plant, the difference in pay is due to a(n):
a. overtime premium.
b. production bonus
c. make-up guarantee.
d. shift premium.
ANS: D
Employers who run shifts other than day shifts often pay shift premiums for those shifts which are
designed to attract workers to the less desirable shifts. Shift premiums compensate employees on the
“swing” or “graveyard” shifts for the lifestyle adjustments necessary to work those shifts, even though
productivity is usually not as high as that of the workers on normal day shifts.

36. Features of a 401(k) plan include all of the following except:

a. Pension benefits are based on past earnings and length of service with the company.
b. The employer may match a certain portion of the employee’s investment.
c. Taxes are deferred on wages invested in the plan.
d. Investments may be made in company stock, mutual funds or other investment vehicles.
ANS: A
A 401(k) plan is a defined contribution plan which means that the plan specifies the amount of
contributions that can be made to the plan by the employee and employer, but the amount of benefits is
tied to the amounts contributed and performance of the investments. Option (a.) above is a
characteristic of a defined benefit plan.

NAT: IMA 2B- Cost Management TOP: AACSB - Reflective
37. John Elton, who is classified as direct labor, earns $1,000 per week and is entitled to four weeks of
vacation and 10 holidays each year. How much should be accrued for his vacation each week?
a. $76.92
b. $80.00
c. $83.33
d. $40.00
ANS: C
Total vacation pay per year = $1,000 x 4 weeks = $4,000
Weeks over which vacation is earned = 52 - 4 = 48
$4,000 / 48 weeks = $83.33 per week

38. John Elton, who is classified as direct labor, earns $1,000 per week and is entitled to four weeks of
vacation and 10 holidays each year. How much should be accrued for his holiday pay each week?
a. $38.46
b. $40.00
c. $46.67
d. $130.00
ANS: C
Daily pay = $1,000 / 5 = $200
Annual holiday pay = $200 x 10 = $2,000
Weeks over which holiday pay is earned = 52 - 4 = 48
$2,000 / 48 weeks = $46.67 per week

39. A factory worker earns $500 per week and will receive a $2,000 bonus at year-end, a 2-week paid
vacation, and 5 paid holidays. The combined amount of the accruals for bonus, vacation, and holiday
pay in the weekly payroll would be:
a. $20.00.
b. $70.00.
c. $40.00.
d. None of the above.
ANS: B
Bonus: $2,000 / 50 weeks = $40 per week
Vacation pay: $500 x 2 weeks = $1,000 / 50 weeks = $20 per week
Holiday pay: $500 / 5 days = $100 per day  5
= $500 / 50 weeks
= $10 per week
Total accrual = $40 + $20 + $10 = $70
Note that the fringe benefits will be earned over the 50 weeks worked since the worker has 2 weeks
vacation.

PROBLEM
1. Management of the Von Machine Company requests that you calculate the effect of two different wage
payment plans upon employee earnings and also on the unit labor cost of Product A.
The following information is available:
(1) The hourly rate is $9.00.

(2) The labor rate per piece of Part X, if the employee is paid on a piece-rate basis, is
$.30.
Ten pieces of Part X are required for one unit of Product A. The plant works a 6-day week and an 8-
hour day, totaling 48 hours per week. No overtime premium pay is to be considered in your analysis.
During a selected week, the following pieces of Part X were produced:
Part X
Day Quantities Produced
1 150
2 200
3 240
4 180
5 300
6 200
An agreement with the union requires a minimum rate of $6.50 per clock hour be paid to employees.
a. Calculate the labor cost each day of the week for an employee under:
(1) the hourly-rate plan.
(2) the piece-rate plan.
b. If the company could anticipate a steady production level of 250 units of Part X each day,
which plan would you recommend to the company’s management? Why?
ANS:
(a) (1) Hourly-Rate Plan:

8 (hours per day)  $9 = $72 per day
(2) Piece-Rate Plan:
Legal Amount
Day Earned Min.* Paid
1 150  $.3 $45.00 $52 $52
2 200  .3 60.00 52 60
3 240  .3 72.00 52 72
4 180  .3 54.00 52 54
5 300  .3 90.00 52 90
6 200  .3 60.00 52 60
*8 (hours per day)  $6.50 = $52 per day.
(b) If the company were to produce 250 units of Part X each day, the hourly rate would result
in a cost of $.288 per unit ($72 / 250), while the piece rate would cost $.30 for each unit
produced. The hourly rate should be recommended because of the lower cost per unit.

2. Becky Graham earns $15 per hour for up to 300 units of production per eight-hour day. If she
produces more than 300 pieces per day, she will receive an additional piece rate of $.40 per unit. A
summary of her work week follows:
Hours Worked Pieces Finished

Monday 8 350
Tuesday 8 280
Wednesday 8 320
Thursday 8 290
Friday 8 300
(a) Determine Graham’s earnings for each day and for the week.
(b) Prepare the journal entry to distribute the payroll for the week.
ANS:
(a) Graham’s earnings are calculated as follows:

Monday 8 350 $120 $140 $140
Tuesday 8 280 120 112 $ 8 120
Wednesday 8 320 120 128 128
Thursday 8 290 120 116 4 120
Friday 8 300 120 120 120
$600 $616 $12 $628
(b)
Work in Process 616
Factory Overhead 12
Payroll 628
PTS: 1 DIF: Moderate REF: P. OBJ: 1, 3

3. Payroll records for selected employees of Tomco Industries for the forty-sixth week of the year are as
follows:
Salary or Gross
wage based Income Wages
on 40 hour Hours Tax through
Employee Classification week Worked Withheld 45th week
R. Shuey President $3,000 40 $600 $135,000
K. Dye Sales Manager 2,500 40 500 98,000
J. Rudnick Direct Labor 800 42 100 4,500
L. Guzzino Direct Labor 600 46 150 28,000
A. Busse Indirect Labor 400 44 80 7,800
Employees are paid time-and-a-half for overtime.
Employer payroll tax rates are as follows:

FICA: 8% of first $100,000 of salary or wages
FUTA: 1% of first $8,000 of salary or wages
SUTA: 4% of first $8,000 of salary or wages
Calculate:
(a) Total gross payroll for the selected employees.
(b) Total employer payroll taxes for the selected employees.
ANS:
(a)
Regular Wages Overtime
Employee or Salary Premium Total Computations
Shuey $3,000 $3,000
Dye 2,500 2,500
Rudnick 840 20 860 800/40=20; 42x20=840; 2x10=20
Guzzino 690 45 735 600/40=15; 46x15=690; 6x7.50=45
Busse 440 20 460 400/40=10; 44x10=440; 4x5=20
Total $7,555
(b)
Cumulative Cumulative
Earnings Earnings Earnings
Employee Week 45 Week 46 Week 46 FICA FUTA SUTA Total
Shuey $135,000 $3,000 $138,000 $ - $ - $ - $ -
Dye 98,000 2,500 100,500 160.00 - - 160.00
Rudnick 4,500 860 5,360 68.80 8.60 34.40 111.80
Guzzino 28,000 735 28,735 58.80 - - 58.80
Busse 7,800 460 8,260 36.80 2.00 8.00 46.80
Total $324.40 $10.60 $42.40 $377.40
Computations:
Shuey has already exceeded the FICA limit of $100,000 and the unemployment tax limit of $8,000, so
the company does not have any payroll tax expense.
Dye has already exceeded the unemployment tax limit of $8,000. This week’s payroll pushes his
cumulative earnings above $100,000, but the portion between $98,000 and $100,000 or $2,000 is
subject to the 8% FICA tax of $160.00.
Rudnick has not hit either limit as yet, so his total earnings for the week of $860 are subject to all
taxes. FICA - $860 x 8% = $68.80; FUTA - $860 x 1% = $8.60; SUTA $860 x 4% = $34.40.
Guzzino has exceeded the $8,000 limit for unemployment taxes, but his earnings are subject to FICA
taxes - $735 x 8% = $58.80.
Busse’s earnings are subject to FICA ($460 x 8% = $36.80), but only $200 of his earnings are subject
to the unemployment taxes ($8,000 limit - $7,800). FUTA - $200 x 1% = $2.00; SUTA - $200 x 4% =
$8.

4. Jerrod Sampson is paid $10 an hour for 40 hours a week, with time-and-a-half for overtime and
double-time for Sundays and holidays. Overtime premium is charged to Factory Overhead.
Using the labor-time record below:

a. Compute Jerrod’s total earnings for the week.
b. Present the journal entry to distribute Jerrod’s total earnings.
SUTA = 4%, FUTA = 1%, FICA = 8%, FIT = 10%
Sun Mon Tues Wed Thur Fri Sat Total

F28 4 4 4 4 4 4 4 28
M14 3 2 5 6 16
Idle 1 1 4 6
Total 4 8 7 9 8 10 4 50
ANS:
a. $570
Regular Pay $500 (50 hours x $10)
Premium $ 70 (4 hours x $10) + (6 hours x $5)
b. Work in Process* 440

Factory Overhead** 130
Payroll 570
* Work in Process: (28 hours x $10 ) + (16 hours x $10 ) = $440

** Factory Overhead: (6 hours x $10) + $70 overtime premium = $130

5. The Wagner Company’s Schedule of Earnings and Payroll Taxes for May is summarized as follows:

Sales $ 8,000 $ 640 $ 80 $ 320 $1,040
Administrative 9,000 720 90 360 1,170
17,000 1,360 170 680 2,210
Factory Employees:
Direct Labor:
Regular 32,000 2,560 320 1,280 4,160
Idle time 3,000 240 30 120 390
Indirect Labor 18,000 1,440 180 720 2,340
58,000 4,640 580 2,320 7,540
Total $75,000 $6,000 $750 $3,000 $9,750
(a) Prepare the journal entry to distribute payroll under each of the following scenarios:
(1) Overtime resulted from priority scheduling of Job 3bX for which the company
received a rush order.
(2) Overtime resulted from random scheduling of jobs.
(b) Prepare the journal entry to record and distribute the employer’s payroll taxes.
ANS:
(a)
(1) Sales Salaries 8,000
Work in Process (32,000 + 5,000) 37,000
Factory Overhead (18,000 + 3,000) 21,000
Payroll 75,000
Since the overtime resulted from a rush order, the overtime premium would be charged to the job
(Work in Process). Idle time is charged to Factory Overhead as it can not be allocated to any one job.
(2) Sales Salaries 8,000

Factory Overhead (18,000 + 3,000 + 5,000) 26,000
Payroll 75,000
Since overtime was the result of random scheduling of jobs, the overtime premium would be charged
to Factory Overhead.
(b) Factory Overhead 7,540

Payroll Tax Expense - Sales Salaries 1,040
Payroll Tax Expense - Admin. Salaries 1,170
Federal Unemployment Tax Payable 750

6. The following payroll summary is prepared for the Sothern Manufacturing Company for the week
ending March 29:
Direct labor:
Job No. 200 $10,300
Job No. 201 7,000
Job No. 202 6,500
Total direct labor $23,800
Total gross payroll $30,000
Payroll taxes and insurance are to be computed as follows:
Employee's Employer's
Share Share
Federal income tax withheld $4,300
State unemployment tax 5.0%
Federal unemployment tax 1.0%
FICA tax 8.0% 8.0%
Disability insurance .5% .25%
Workmen's compensation insurance 2.0%
Prepare the general journal entries to:
a. Record the payroll.

b. Pay the payroll.
c. Distribute the payroll to the appropriate accounts.
d. Record the employer's share of payroll tax expense. (All of the employees work in
the factory.)
ANS:
(a) Payroll 30,000

FICA Tax Payable (30,000 x 8%) 2,400
Federal Income Tax Withheld 4,300
Disability Insurance Withheld (30,000 x .5%) 150
Wages Payable (30,000 - 2,400 - 4,300 - 150) 23,150
To record payroll.
(b) Wages Payable 23,150

Cash 23,150
(c) Work in Process 23,800

Factory Overhead (Indirect Labor) 6,200
Payroll 30,000
To distribute payroll.
(d) Factory Overhead 4,875

FICA Tax Payable (30,000 x 8%) 2,400
Disability Insurance Withheld (30,000 x .25%) 75
State Unemployment Tax Payable (30,000 x 5%) 1,500
Federal Unemployment Tax Payable (30,000 x 1%) 300
Workmen's Compensation
Insurance Payable (30,000 x 2%) 600
To record employer's share of payroll associated
costs.

7. Tyler Jacob is paid $15 per hour for a 40-hour work week with time-and-a-half for overtime, which is
not charged to specific jobs. For the week of March 4 - 10, Tyler’s labor time record was as follows:
Mon Tues Wed Thur Fri Sat Total
Job B280 8 5 6 10 10 2 41
Machine maintenance 4 2 1 7
Total 8 9 8 10 10 3 48
Other Information:
Tyler’s year-to-date wages as of March 3 were $7,500. He contributes $20 weekly for his health
insurance premiums.
Current tax rates in effect are: FIT withholding rate - 10%; FICA - 8% on the first $100,000 of wages;
SUTA - 4% on the first $8,000 of wages; and FUTA - 1% on the first $8,000 of wages.
(a) Calculate Tyler’s gross and net pay.

(b) Prepare the journal entries necessary to
(1) Record Tyler’s payroll
(2) Pay Tyler’s payroll
(3) Distribute Tyler’s payroll to the appropriate accounts
(c) Calculate the employer’s payroll taxes and prepare the journal entry to record them employer’s
portion of payroll taxes
ANS:
(a)
Gross pay:
48 hours x $15.00/hr. $720.00
8 hours x $ 7.50/hr. (15.00/.5) 60.00
Total gross pay $780.00
Deductions:
FIT Withholding $780 x 10% $ 78.00
FICA - Employee portion $780 x 8% 62.40
Health insurance premium 20.00
Total deductions $160.40
Net Pay $619.60
(b)
Payroll 780.00
Employees’ Income Tax Payable 78.00
FICA Tax Payable 62.40
Health Insurance Premium Payable 20.00
Wages Payable 619.60
To record payroll
Work in Process (41 hrs. x $15) 615.00

Factory Overhead (7 hrs. x $15) + $60 (Overtime) 165.00
Payroll 780.00
To distribute payroll
Wages Payable 619.60

Cash 619.60
To record payment of payroll
(c)
Year-to-date payroll, March 3 $7,500
Earnings March 4 - 10 780
Year-to-date payroll, March 10 $8,280
Subject to FUTA and SUTA 8,000
Not subject to FUTA and SUTA $ 280
Amount of earnings March 4 - 10 subject to unemployment taxes = $780 - 280 = $500
Employer’s payroll taxes:

FICA (per above) $62.40
SUTA ($500 x 4%) 20.00
FUTA ($500 x 1%) 5.00
Factory Overhead 87.40

FICA Tax Payable 62.40
State Unemployment Tax Payable 20.00
Federal Unemployment Tax Payable 5.00
To record employer’s payroll taxes

8. The Tidle Manufacturing Company uses a job order cost system. Factory wages are paid on a straight
hourly basis with indirect labor getting $8.50 an hour and direct labor getting $10.00 an hour.
During the week of January 7, the following hours were worked:
Direct Indirect
Cutting Department 2,200 250
Splicing Department 2,400 200
Sanding Department 1,850 125
Joining Department 4,250 325
Salaries and wages are paid weekly, with administrative salaries totaling $16,500 and salesperson's
salaries totaling $12,200.
The following deductions are to be considered:
FICA tax 8.0%

Federal income tax 12.0%
State income tax 2.0%
Federal unemployment tax 1.0%
State unemployment tax 5.0%
Prepare journal entries to record:
a. The payroll.
b. The payment of the payroll.
c. The payroll distribution.
d. The employer's payroll tax expense.
ANS:
(a) Payroll* 143,350.00

FICA Tax Payable ($143,350 x 8% ) 11,468.00
Federal Income Tax Withheld ($143,350 x 12%) 17,202.00
State Income Tax Payable ($143,350 x 2% ) 2,867.00
Salaries and Wages Payable 111,813.00
To record payroll.
*(10,700 x $10) + (900 x $8.50) + $16,500 + $12,200
(b) Salaries and Wages Payable 111,813.00

Cash 111,813.00
To pay payroll.
(c) Work in Process (10,700 x $10 ) 107,000.00

Factory Overhead (900 x $8.50) 7,650.00
Administrative Salaries 16,500.00
Sales Salaries 12,200.00
Payroll 143,350.00
To distribute payroll.
(d) Factory Overhead* 16,051.00

Payroll Tax Expense**--
Sales and Administrative Salaries 4,018.00
FICA Tax Payable ($143,350 x 8%) 11,468.00
Federal Unemployment Tax Payable ($143,350 x 1%) 1,433.50
State Unemployment Tax Payable ($143,350 x 5%) 7,167.50
To record employer's share of payroll taxes.
*($107,000 + $7,650) x (8% + 1% + 5%) = $16,051
**($16,500 + $12,200) x (8% + 1% + 5%) = $4,018

9. Ken Astor is a factory worker at Flox Co. earning $27.00 per hour. Astor is eligible for five paid
holidays and six weeks vacation and is paid “time-and-a-half” for overtime. Astor’s earnings so far
this year are $45,000.
Tax rates are as follows:

Employee income tax 15% on all earnings
FICA 8% on first $100,000 of earnings
FUTA 1% on first $8,000 of earnings
SUTA 4% on first $8,000 of earnings
Assuming Ken worked 46 hours this week, calculate the total expense to Flox Co for this weeks,
wages, payroll taxes and fringe benefits.
ANS:
Wages: Total
Regular wages $27 x 46 hr. $1,242.00
Overtime premium $13.50 x 6 hr. 81.00 $1,323.00
Employer payroll tax *

FICA $1,323 x 8% 105.84
Fringe benefits **
Vacation $27 x 40 hours = 1,080 x 6 = 6,480/46 = 140.87
Holiday 5 days paid = 1,080/46 23.48
$1,593.19
* Astor has already exceed the unemployment tax limits.
** Since Astor has 6 weeks of vacation, he is earning his benefits over the 46 weeks he works.
PTS: 1 DIF: Hard REF: P. OBJ: 3, 5

10. Tacy Company’s Schedule of Earnings and Payroll taxes for the period ended March 28 - 31 to be paid
April 5 follow:
Total
Gross payroll
Wages FICA SUTA FUTA taxes
Non-factory:
Sales $ 7,500 $ 600 $ 240 $ 60 $ 900
11,500 920 352 88 1,360
Factory:
Direct labor 52,000 4,160 2,080 520 6,760
Overtime premium 4,500 360 180 45 585
Indirect labor 10,000 800 400 100 1,300
66,500 5,320 2,660 665 8,645
$78,000 $6,240 $3,012 $753 $10,005
Prepare the journal entries to:

(a) Accrue the payroll in the appropriate period
(b) Distribute the accrued payroll in the appropriate period
(c) Recognize related accrued employer’s payroll taxes in the appropriate period
assuming payroll taxes are spread over all jobs produced.
ANS:
The following journal entries would be recorded in March
(a) Payroll 78,000

To accrue payroll for the period Mar. 28 - 31
(b) Work in Process 52,000

Factory Overhead (10,000 + 4,500) 14,500
Sales Salaries 7,500
Payroll 78,000
To distribute payroll for period Mar. 28 - 31
(c) Factory Overhead 8,645

Payroll Tax Expense - Sales Salaries 900
Payroll Tax Expense - Administrative Salaries 460
Federal Unemployment Tax Payable 753
To recognize employer’s payroll taxes for the
period Mar. 28 - 31.

11. A direct laborer in a factory earns $1,000 each week. In addition, she will receive a $2,500 bonus at
year end, a two-week paid vacation, and seven paid holidays.
Prepare the entry to distribute her wages and the costs and liabilities related to bonus, vacation, and
holiday pay. (Round all amounts to two decimal places.)
ANS:
Work in Process $1,000

Factory Overhead (bonus) 50
Factory Overhead (vacation) 40
Factory Overhead (holiday pay) 28
Payroll 1,000
Bonus Liability* 50
Vacation Pay Liability** 40
Holiday Pay Liability*** 28
* Bonus: $2,500 / 50 weeks = $50 per week

** Vacation: $1,000 x 2 weeks = $2,000 / 50 = $40 per week
*** Holiday pay: $1,000 / 5 days = $200 per day  7
= $1,400
$1,400 / 50 weeks = $28 per week


03 Accounting For Labor

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03 Accounting For Labor

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CHAPTER 3—ACCOUNTING FOR LABOR

PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

3. All of the following are characteristics of hourly wage plans except:

PTS: 1 DIF: Easy REF: P. OBJ: 1

4. A wage plan based solely on an employee's quantity of production is known as a(n):

PTS: 1 DIF: Easy REF: P. OBJ: 1

PTS: 1 DIF: Moderate REF: P. OBJ: 1

Monday 220 units

Hours Pieces Earnings @ Earnings @ Make-up Payroll

PTS: 1 DIF: Moderate REF: P. OBJ: 1

Monday 220 units

What were Jim’s total earnings this week?

Hours Pieces Earnings @ Earnings @ Make-up Payroll

PTS: 1 DIF: Moderate REF: P. OBJ: 1

PTS: 1 DIF: Hard REF: P. OBJ: 1

PTS: 1 DIF: Easy REF: P. OBJ: 2

PTS: 1 DIF: Easy REF: P. OBJ: 2

PTS: 1 DIF: Moderate REF: P. OBJ: 2

PTS: 1 DIF: Moderate REF: P. OBJ: 2

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Job 417 34 hours

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Factory Sales and Admin.

The entry to record payroll would be:

b. Work in Process 80,000

c. Factory Overhead 80,000

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Factory Sales and Admin.

a. A debit to payroll for $105,000.

Wages Payable 80,600

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Job XBRL 20.5 hours

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Job XBRL 20.5 hours

PTS: 1 DIF: Hard REF: P. OBJ: 3

Gross FICA FUTA SUTA Total

Work in Process 80,000

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Moderate REF: P. OBJ: 3

Gross FICA FUTA SUTA Total

Factory Overhead 14,950

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Hard REF: P. OBJ: 3

Employees' income taxes $2,250

PTS: 1 DIF: Moderate REF: P. OBJ: 4

PTS: 1 DIF: Moderate REF: P. OBJ: 4

Administrative salaries $ 5,000

a. Factory Overhead 4,000

b. Payroll Tax Expense - Sales 400

c. Payroll Tax Expense 4,000

d. Payroll Tax Expense - Sales 400

PTS: 1 DIF: Moderate REF: P. OBJ: 4

$57,500 / 5 days = $11,500 per day x 4 days = $46,000

PTS: 1 DIF: Moderate REF: P. OBJ: 4

Indirect labor $15,000

$17,500 / 5 days = $3,500 per day x 4 days = $14,000

PTS: 1 DIF: Hard REF: P. OBJ: 4

a. Debit - Wages Payable

c. Debit - Factory Overhead