CHAPTER 5: LABOR ACCOUNTING –

CONTROL AND COSTING

PART II
TOPICS TO BE DISCUSSED

1 CHARGING LABOR COSTS INTO PRODUCTION

2 RECORDING LABOR COSTS

3 FLOW OF LABOR COSTS

4 EMPLOYER’S CONTRIBUTIONS
1 Charging Labor Costs into Production

• Direct labor costs are to be allocated

between direct labor and indirect labor costs
• Direct labor costs are charged to Work in
Process
• Indirect labor costs are to be charged to
Manufacturing Overhead Control
1 Charging Labor Costs into Production

Time Tickets
• to facilitate the allocation of labor costs
between direct and indirect labor, a time
ticket is prepared by each employee.
• Sometimes called “job time cards” – used
to show how time was used on specific jobs.
1 Charging Labor Costs into Production

Time Tickets
• Workers paid on hourly wage rate (both
indirect and direct) are required to prepare
daily time tickets.
• Workers receiving fixed monthly salary are
not required to prepare.

**see time tickets format on page 177 (doc. 21)**

1 Charging Labor Costs into Production

Summary of Time Tickets

• Each week, a summary of time tickets is
prepared to show the direct labor costs
incurred as well as the indirect labor
• Direct Labor – posted on job cost sheet
• Indirect Labor – posted on departmental
overhead analysis sheet
1 Charging Labor Costs into Production

Semimonthly Payroll
• Shows the wages earned by employees
who are on a fixed monthly salary.
• Earnings are classified as indirect labor.
Unearned Wages
• At the end of the month, time tickets are
analyzed to determine labor costs that have
been incurred but have not yet been paid.
• This labor costs are to be accrued.
2 Recording Labor Costs

• At the end of the month, a summary of

factory wages is prepared from the job cost
sheets and departmental overhead analysis
sheets.
• The summary shows total direct labor costs
and total indirect labor costs incurred during
the month.
2 Recording Labor Costs

Journal entry to record in the Journal Voucher:

Work in Process xx
Manufacturing Overhead Control xx
Factory Payroll xx

• This balance is shown in the statement of

financial position as a current liability
“Payroll Payable” or “Accrued Wages
Payable”
3 Flow of Labor Costs

**illustration for flow of labor costs is shown on page 179

(illustration 5-2)**

Procedures:
1. Record the number of hours worked each
day by each employee on a time card.
2. Record the hours and type of work
performed each day by each employee on
a time ticket.
3 Flow of Labor Costs

3. Record the total earning, deductions and

net pay of all employees for a payroll period in
the payroll register. Post the totals from the
payroll register to the appropriate ledger
accounts.
4. Post the earnings, deductions amd net pay
for each employee to an individual earnings
record.
3 Flow of Labor Costs

5. Record direct labor costs to the individual

job cost sheets. Enter indirect labor costs on
the departmental overhead analysis sheets.
6. Prepare summary of factory wages,
prepare journal entry to charge labor costs to
production. Post the amounts to Work in
Process account, Manufacturing Overhead
Control account, and the Factory Payroll
account.
4 Employer’s Contributions

• The employer is compelled to contribute to

the Employees’ Compensation Commission
(ECC) for its covered employee’s
compensation and government insurance
• These contributions are charged to
Manufacturing Overhead Control account.
4 Employer’s Contributions

Labor – Related Costs

• The term labor costs comprises not only the
wages paid but also the expenditures made
by the employer on behalf of the employees.
• Usually called “Fringe Benefits”
• Ex. Sick pay, vacation and holiday pay,
health insurance, pension payments,
hospitalization benefits, etc.
4 Employer’s Contributions

Labor – Related Deductions

• Other deductions may be withheld from the
salaries upon the request and with the
consent of the employees.
• Ex. Union dues, insurance and payroll
advances
4 Employer’s Contributions

Overtime Premium
• Gross earnings of employees are divided
into two parts: (1) earnings at regular rate;
(2) overtime premium
• Earning at regular rate = total hours x
regular pay rate
• Overtime premium = overtime hours x
overtime pay rate.
**to further understand see illustration on page 181**
Thank you