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Unformatted text preview: CHAPTER 3 QUESTIONS 1. Direct labor is that part of factory wages earned by employees who perform work on the item manufactured; it is charged directly to the job or product. Indirect labor is that part of factory wages earned by employees engaged in the manufacturing process who do not work directly on the units being man- ufactured; it cannot be charged to any par- ticular job or product but must be treated as overhead. 2. a. An advantage of the hourly rate plan is that there is no temptation on the part of the workers to speed up their work at the sacrifice of quality or perfection. On the other hand, it provides no incentive for increased production. b. The principal advantage of the piece- rate plan is that it provides an incentive for increased production. The more units produced under such a plan, the higher the employee's earnings. However, there may be a temptation to strive for a high level of output at a sac- rifice of quality. A greater degree of su- pervision is required and more detailed records must be maintained when a piece-rate plan is used. 3. A modified wage plan combines certain fea- tures of both the hourly rate and piece-rate plans. Employees are paid a regular hourly wage plus an additional incentive rate if es- tablished quotas are exceeded. 4. In production work teams, output is depend- ent upon contributions made by all members of the work crew. If the number of pieces finished depends on a group effort, then a single incentive plan for the group may be appropriate. 5. The payroll department is responsible for determining the amount of each employee’s: a. gross earnings. b. withholdings and deductions. c. net pay. The payroll department should also provide the accounting department with the informa- tion necessary to allocate the labor costs. 6. The labor-time record shows the employee’s time spent on each job, as well as the time spent on indirect labor activities. It is the source document for allocating the cost of labor to jobs or departments in the job cost ledger and the factory overhead ledger. 7. Many companies issue magnetic cards to direct laborers who use them to “log on” and “log off” to specific job assignments. They slide the card through a magnetic card read- er that is connected to a computer terminal. The computer sends this information to the accounting department for the preparation of the payroll and the distribution of the labor costs to the appropriate jobs. 8. Almost all payroll records would contain the following employee information: a. Marital status b. Number of withholding allowances for income tax purposes c. Rate of pay d. Hours worked per day e. Regular earnings—hours and amount f. Overtime earnings—hours and amount g. Total earnings h. FICA taxable earnings i. Withholdings and deductions—FICA tax, federal, state, and local income taxes, health insurance, union dues, etc....
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This note was uploaded on 07/10/2011 for the course BUSINESS 550 taught by Professor Backer during the Spring '11 term at Limestone.
- Spring '11