ACC 122: Cost Accounting and Control

Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Lesson title: Job-Order: Direct Labor Materials:

Lesson Objectives: Textbook, SAS, & calculator
At the end of this module, I should be able to References:
1. Explain the different wage plans. Hansen & Mowen; Cost Accounting &
2. Account for labor costs and special payroll cost problems. Control; 2019 Edition
Vanderbeck, Edward J.; Principles of
Cost Accounting; 15th edition

Productivity Tip:
Try explaining the process to someone you know who is already working (this is because of the topic
itself). Check your module materials again later if your explanation is correct .

A. LESSON PREVIEW/REVIEW .

1) Activity 1 : Introduction/Review (2 mins)

Ready for another learning? You will enjoy the next topic because someday, you’ll be earning and you’ll
meet the term “payroll”. Payroll refers to the total amount of wages and salaries paid by a company to its
employees. Excited to earn someday? ☺ Hold on for a sec, you need to develop the necessary skills today
before you will provide your professional services. It’s okay to commit mistakes now, rather than face a bigger
problem in the future because of not taking the lessons seriously!
In this module, you’ll have the perspective of an accountant who’s responsible in accounting for the labor
costs on how it will affect the unit cost of products/services provided by the company. You may now start.

2) Activity 2 (LO1 & LO2): What I Know Chart, part 1 (3 mins)

Alright! Let’s see what you already know, answer the first column (What I know). Leave the third
column (What I Learned) blank at this time.

What I Know Questions What I Learned (Activity 5)

1. What are the different wage
plans can a company provide to
its employees?
2. Provide the entry when payroll
is incurred. Include the
deductions.

B. MAIN LESSON
1) Activity 3 (LO1 and LO2): Content Notes (13 mins)

Make sure to highlight or underline the important parts! Refer to chapter 5 of your book for
additional discussion found on pages 224-225.

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

TOTAL COSTS OF A MANUFACTURING FIRM

MANUFACTURING (PRODUCT) COST NON-MANUFACTURING (PERIOD)

Prime Cost Manufacturing Overhead COST
Indirect
Direct Direct Indirect Indirect Administrative
Manufacturing Selling Expenses
Materials Labor Materials Labor Expenses
Expenses
Conversion Cost

Payroll Costs:
1. Direct Labor
• Represents payroll costs traced directly to an individual job.
• Also known as “touch labor”. Wages of machinists, assemblers, and other workers who
physically convert raw materials to finished goods—thus the term “touch labor”.
• Direct labor costs are debited to the work in process account.

2. Indirect Labor
• Labor consists of labor costs incurred for a variety of jobs related to the production
process but not readily traceable to the individual jobs worked on during the period.
• Salaries and wages of the factory superintendent, supervisors, janitors, clerks, and
factory accountants who support all jobs worked on during the period.
• Indirect labor costs are charged to factory overhead.

Payroll Accounting System for a Manufacturer

1. Record the hours worked or quantity of output by employees in total and by job, process,
or department.
2. Analyze the hours worked by employees to determine how labor time is to be charged.
3. Charge payroll time to jobs, processes, departments, and factory overhead.
4. Prepare the payroll.

LO1: Explain the different wage plans

Common Wage Plans

1. Hourly rate plan
• The employee’s wages are calculated by multiplying the established rate per hour by the
number of hours worked.
• This plan does not provide an incentive for the employee to achieve a high level of
productivity.

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

2. Piece-rate plan
• Employee’s wages based on the employer’s quantity of production.
• Number of units produced is multiplied by a predetermined rate.
• May be referred to as incentive wage plan or piece-rate plan.
• Quality may be sacrificed in order to maximize quantity.

3. Modified Wage plan

• Minimum hourly wage is set even if an established quota is not attained.
• If quota is exceeded, a bonus is added to the minimum wage level.
• On days when the quota is not met, the difference (make-up guarantee) would be
charged to factory overhead.
• When production work teams are utilized, a single incentive for the group would be
appropriate.

Labor Time Records

• Given the magnetic card reading technology available today, the time record typically
takes the form of a computer file.
• The labor hours recorded should be reviewed by a production supervisor for accuracy

Payroll Function
• Primary responsibility is to compute the wages and salaries earned by the employees.
• Forms should include a payroll record and employees’ earnings records.
• A summary of the payroll is sent to accounting to record the payroll in the accounting
records.
• The payroll record is sent to the treasurer’s department for making payments to
employees.

LO2: Account for labor costs and special payroll cost problems
Accounting for Labor Costs
• Labor-time records are sent to the payroll department on a daily basis.
• The labor costs are charged to the appropriate jobs or departments and factory overhead.
• This analysis is recorded on a labor cost summary, in the job cost ledger, and in the
factory overhead ledger.
• Earnings of salaried employees are recorded in the factory overhead ledger accounts and
on the labor cost summary.

Journal entry to record Payroll

Payroll* xxx
Income Tax Payable (employees) xx
SSS Payable xx
Philhealth Payable xx
PAG-IBIG Payable xx
Other employee deductions xx
Wages Payable xx
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

*Payroll will be distributed to different accounts that is applicable for the incurrence.

Payment of earnings to employees

• Accounting department sends the payroll record to the treasurer’s office.
• The treasurer’s office is responsible for making the payments to employees.

Journal entry for payment of earnings

Wages Payable xx
Cash xx

Flow of Costs from Subsidiary Records to General Ledger

Labor Cost Summary

• Hourly workers should be recording their time on a labor time record.
• Labor costs are recorded on a labor cost summary.
• This summarizes the direct labor and indirect labor charges to a department for the
period.
• Salaried employees are often not required to prepare labor time records.
• The labor cost summary becomes the source for making a general journal entry, shown below, to
distribute payroll to the appropriate accounts.

Work-in-process xx
Factory Overhead xx
Sales Salaries xx
Administrative Salaries xx
Payroll xxx

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Payroll Accrual
• When the end of the period does not coincide with the ending date for a payroll period, an
accrual for payroll earnings should be made.
Payroll xx
Wages Payable xx

Special Labor Cost Problems

• Shift Premiums – additional pay to employees because of shifts other than the regular
daytime shift.
• Employee Pension - originate from an agreement between a company and its employee
group, by which the company promises to provide income to employees after they retire.
• Bonuses – higher than usual company profits, exceeding departmental quotas for selling
or production, or for any other achievement that the company feels merits additional pay.
• Vacation and Holiday pay - Vacation pay is earned by the employee for daily service on
the job over the course of the year. Holiday pay is an agreement that stipulates that
certain holidays during the year will be paid for by the company, but they are nonworking
days for the employees.

Work in Process XX
Factory Overhead (Bonus) XX
Factory Overhead (Vacation) XX
Factory Overhead (Holiday) XX
Payroll XX
Bonus Liability XX
Vacation Pay Liability XX
Holiday Pay Liability XX
Incurred payroll and bonus, vacation, and holiday pay.

2) Activity 4: Skill-building Activities (18 mins + 2 mins checking) SCORE: ________________

Let’s try to practice what you have learned! Check your answers against the Key to Corrections
found at the end of this SAS. Write your score on the space provided.

Part I (LO1): Wage Plans

1. What is the difference between direct and indirect labor?

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

2. Discuss the advantages and disadvantages between hourly rate wag plans and piece-rate plans.

3. Does a modified wage plan promotes effectiveness and efficiency at the same time? Why or why
not?

PART II (LO2): Let’s Practice!

Problem 1
An employee earns P20 per hour for up to 200 units of production per day. An employee who produces
more than 200 units per day receives an additional piece rate of P.50 per unit. Assume that an
employee worked eight hours per day with the following unit production for the week: Monday, 200;
Tuesday, 175; Wednesday, 225; Thursday, 250; and Friday, 150. Calculate the employee’s gross
earnings for the week.

B
A Total
Piece-rate Earnings
Day Hours Units Hourly Earnings Earnings
(units in excess of
(fixed rate) (A+B if any)
200 x P.50)
Monday 8 160
Tuesday 8 160
Wednesday 8 160
Thursday 8 160
Friday 8 160
Total 40 800

Problem 2
The total wages and salaries earned by all employees of Dilbert Mfg. Co. during the month of April, as
shown in the labor cost summary and the schedule of fixed administrative and sales salaries, are

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

classified as follows:
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P312,563
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,060
Administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70,100
Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 86,250
Total wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P549,973

Prepare a journal entry to distribute the wages earned during April.

Problem 3
Larry Riester earns P1,000 per week for a five-day week, and he is entitled to 10 paid holidays and four
weeks of paid vacation per year.
a. What is the amount of the total holiday pay and how much of it should be expensed per week?
Holiday pay = ______ rate per day x _______ paid holidays = P _______________
Expense per week = _______ holiday pay / _____ weeks worked in a year = P___________

b. What is the total vacation pay and how much of it should be expensed per week?
Vacation pay = _______ rate per week x ______ weeks of paid vacation = P ____________
Expense per week = _______ vacation pay / ____ weeks worked in a year = P __________.

3) Activity 5: What I Know Chart, part 2 (2 mins)

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in
the “What I Learned” column. Let’s see your improvement!

4) Activity 6 (LO & LO): Check for Understanding (5 mins)

To better test your knowledge on the topic, encircle the best answer for each question. Your
teacher will provide you the answer after you have finished the activity.

1. Under a modified wage plan, an employee earns P.75 for each finished unit and is guaranteed P10
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. P80.00
b. P72.25
c. P16.25
d. P5.00

2. An employee regularly earns P12 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:
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

a. P36.
b. P18.
c. P12.
d. P6.

3. A factory worker earns P500 per week and will receive a P2,000 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. P20.00.
b. P70.00.
c. P40.00.
d. None of the above.

4. 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 P 5,000
Administrative 10,000
P15,000
Factory:
Direct labor P25,000
Overtime premium 2,500
Indirect labor 15,000
P42,500
P57,500

Excluding payroll taxes, what amount should be accrued to the payroll account for the period ended
April 30?

a. P57,500
b. P46,000
c. P42,500
d. P34,000

C. LESSON WRAP-UP

1) Activity 7: Thinking about Learning (5 mins)

1. Work Tracker

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 6

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

You are done with this session! Let’s track your progress. Shade the session number you just
completed.

2. Think about your Learning

From a rating of 1-10, determine if you have learned all the learning objectives. What is the reason of
your rating?
__________________________________________________________________________________
__________________________________________________________________________________

What part of the module gave you a hard time to comprehend?

__________________________________________________________________________________
__________________________________________________________________________________

Any other questions or concerns you want to raise?

__________________________________________________________________________________
__________________________________________________________________________________

FAQs
1. What purpose do digital records and remote computer terminals serve in a payroll system?
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 reader 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.

2. Are employers required to provide retirement plans to its employees?

According to Republic Act no. 7641, “In the absence of a retirement plan or agreement providing for
retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years
or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has
served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months
being considered as one whole year.

Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15)
days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of
service incentive leaves.

Retail, service and agricultural establishments or operations employing not more than (10) employees or
workers are exempted from the coverage of this provision.

Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under
Article 288 of this Code."
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