VanDerbeck15e_Ch03

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 NAT: IMA 2B - Cost Management

REF: P. OBJ: Introduction 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 NAT: IMA 2B - Cost Management

REF: P. OBJ: Introduction TOP: AACSB - Reflective

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 NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 TOP: AACSB - Reflective

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.

PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 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. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 TOP: AACSB - Analytic

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 NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 TOP: AACSB - Analytic

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 Tuesday Wednesday Thursday Friday

220 units 180 units 200 units 200 units 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 Worked Monday Tuesday

Pieces Finished 8 8

220 180

Earnings @ $12.50/hr

Earnings @ $.50/unit

$100 100

$110 90

Make-up Guarantee $10

Payroll Earnings $110 100

8 8 8

Wednesday Thursday Friday

200 200 190

100 100 100 $500

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

100 100 95 $495

5 $15

100 100 100 $510

REF: P. OBJ: 1 TOP: AACSB - Analytic

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 Tuesday Wednesday Thursday Friday

220 units 180 units 200 units 200 units 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: Hours Worked Monday Tuesday Wednesday Thursday Friday

Pieces Finished 8 8 8 8 8

220 180 200 200 190

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

Earnings @ $12.50/hr

Earnings @ $.50/unit

$100 100 100 100 100 $500

$110 90 100 100 95 $495

Make-up Guarantee $10

5 $15

Payroll Earnings $110 100 100 100 100 $510

REF: P. OBJ: 1 TOP: AACSB - Analytic

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 NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 TOP: AACSB - Reflective

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. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management

REF: P. OBJ: 2 TOP: AACSB - Analytic

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. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management

REF: P. OBJ: 2 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 2 TOP: AACSB - Analytic

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. PTS: 1

DIF: Moderate

REF: P.

OBJ: 2

NAT: IMA 2B - Cost Management

TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 Job 532

34 hours 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 Overtime premium PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

11 hrs. x $12 5 hrs. x $ 6

$132 30 $162

REF: P. OBJ: 3 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

19. The payroll summary for EVB Inc. for the period August 3 - 10 is as follows: Factory Employees Gross Earnings Withholding and deductions: FICA Income taxes Union dues Total Net earnings

Sales and Admin. Employees

Total

$80,000

$25,000

$105,000

6,400 10,600 400 17,400 $62,600

2,000 5,000 7,000 $18,000

8,400 15,600 400 24,400 $80,600

The entry to record payroll would be: a. Payroll

FICA Payable Employees Income Tax Payable Union Dues Payable Wages Payable

b. Work in Process

Factory Overhead Payroll

c. Factory Overhead

Selling and Administrative Expense FICA Payable Employees Income Tax Payable Union Dues Payable Wages Payable

105,000

8,400 15,600 400 80,600

80,000 25,000 105,000 80,000 25,000 8,400 15,600 400 80,600

d. Payroll

105,000

Wages Payable

105,000

ANS: A The entry to record the payroll would be: 105,000

Payroll FICA Payable Employees Income Tax Payable Union Dues Payable Cash

8,400 15,600 400 80,600

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

20. The payroll summary for EVB Inc. for the period August 3 - 10 is as follows: Factory Employees Gross Earnings Withholding and deductions: FICA Income taxes Union dues Total Net earnings

Sales and Admin. Employees

Total

$80,000

$25,000

$105,000

6,400 10,600 400 17,400 $62,600

2,000 5,000 7,000 $18,000

8,400 15,600 400 24,400 $80,600

The entry to record the payment of earnings to the employees would include: a. b. c. d.

A debit to payroll for $105,000. A credit to wages payable for $80,600. A debit to wages payable for $80,600. A credit to cash of $105,000.

ANS: C The entry to record the payment of earnings to the employees would be: Wages Payable Cash PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

80,600 80,600

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 Job FASB Idle time due to power outage Machine maintenance

20.5 hours 14.5 hours 2.0 hours 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. b. c. d.

$560 $608 $584 $680

ANS: C Job XBRL Job FASB Overtime premium Total

20.5 hrs. x $16 14.5 hrs. x $16 3.0 hrs. x $ 8

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

$328 232 24 $584

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 Job FASB Idle time due to power outage Machine maintenance

20.5 hours 14.5 hours 2.0 hours 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. b. c. d.

$120 $152 $40 $128

ANS: B Idle time Machine maintenance Overtime premium Total

2 hrs. x $16 6 hrs. x $16 3 hrs. x $ 8

PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

$ 32 96 24 $152

REF: P. OBJ: 3 TOP: AACSB - Analytic

23. Daktari Enterprises’ Schedule of Earnings and Payroll Taxes for April is as follows: Gross Earnings Non-Factory Employees: Sales Administrative Factory Employees: Direct Labor: Regular

$ 10,000 7,000 17,000

80,000

FICA 8% $

800 560 1,360

6,400

FUTA 1% $

100 70 170

800

SUTA 4% $

Total Taxes

400 280 680

$ 1,300 910 2,210

3,200

10,400

Overtime Premium Indirect Labor Total

5,000 30,000 115,000 $132,000

400 2,400 9,200 $10,560

50 300 1,150 $1,320

200 1,200 4,600 $5,280

650 3,900 14,950 $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: 80,000 35,000 10,000 7,000

Work in Process Factory Overhead Sales Salaries Administrative Salaries 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). PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

25. Daktari Enterprises’ Schedule of Earnings and Payroll Taxes for April is as follows: Gross Earnings Non-Factory Employees: Sales Administrative Factory Employees: Direct Labor: Regular Overtime Premium

$ 10,000 7,000 17,000

80,000 5,000

FICA 8% $

800 560 1,360

6,400 400

FUTA 1% $

100 70 170

800 50

SUTA 4% $

Total Taxes

400 280 680

$ 1,300 910 2,210

3,200 200

10,400 650

Indirect Labor Total

30,000 115,000 $132,000

2,400 9,200 $10,560

300 1,150 $1,320

1,200 4,600 $5,280

3,900 14,950 $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: Factory Overhead Payroll Tax Expense - Sales Salaries Payroll Tax Expense - Administrative Salaries FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable

14,950 1,300 910 10,560 1,320

5,280

Generally, payroll taxes on direct labor wages are charged to Factory Overhead for the purpose of convenience. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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. PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 Employee FICA Employer FICA Total

$2,250 1,200 1,200 $4,650

PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Reflective

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

d. Payroll

30,000

Wages Payable Federal Income Tax FICA Taxes Payable Wages Payable Federal Income Tax FICA Taxes Payable SUTA FUTA Wages Payable

30,000 4,500 2,400 23,100 4,500 2,400 1,800 300 21,000

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Analytic

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

$ 5,000 5,000 30,000 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

FICA Tax Payable

4,000

b. Payroll Tax Expense - Sales

400 Payroll Tax Expense - Administrative 400 Work in Process 3,200 FICA Tax Payable

c. Payroll Tax Expense

FICA Tax Payable

4,000

4,000 4,000

d. Payroll Tax Expense - Sales

400 Payroll Tax Expense - Administrative 400 Factory Overhead 3,200 FICA Tax Payable 4,000

ANS: D Payroll tax expense - sales Payroll tax expense - administrative Factory overhead

5,000 x 8% = 400 5,000 x 8% = 400 (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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Analytic

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 Administrative Factory: Direct labor Overtime premium Indirect labor

$ 5,000 10,000 $15,000 $25,000 2,500 15,000 $42,500 $57,500

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

a. b. c. d.

$57,500 $46,000 $42,500 $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 PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Analytic

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 Administrative

$ 5,000 10,000 $15,000

Factory: Direct labor Overtime premium Indirect labor

$25,000 2,500 15,000 $42,500 $57,500

Excluding payroll taxes, how much of the accrued payroll at April 30 should be charged to Factory Overhead? a. b. c. d.

$17,500 $26,000 $14,000 $34,000

ANS: C If April 30 is Thursday, four days of the payroll fall in April and one in May. $15,000 2,500 $17,500

Indirect labor Overtime premium Total payroll relating to factory overhead $17,500 / 5 days = $3,500 per day x 4 days = $14,000 PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Analytic

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 4 TOP: AACSB - Analytic

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. PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

REF: P. OBJ: 5 TOP: AACSB - Reflective

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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 5 TOP: AACSB - Reflective

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. PTS: 1 DIF: Moderate NAT: IMA 2B- Cost Management

REF: P. OBJ: 5 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 PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 5 TOP: AACSB - Analytic

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 PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 5 TOP: AACSB - Analytic

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: Vacation pay: Holiday pay:

$2,000 / 50 weeks $500 x 2 weeks $500 / 5 days

= = = = =

$40 per week $1,000 / 50 weeks = $20 per week $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. PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

REF: P. OBJ: 5 TOP: AACSB - Analytic

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) (2)

The hourly rate is $9.00. 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 8hour 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: Day 1 2 3 4 5 6

Part X Quantities Produced 150 200 240 180 300 200

An agreement with the union requires a minimum rate of $6.50 per clock hour be paid to employees. a. b.

Calculate the labor cost each day of the week for an employee under: (1) the hourly-rate plan. (2) the piece-rate plan. 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: Day      

$.3 .3 .3 .3 .3 .3 *8 (hours per day)  $6.50 = $52 per day. 1 2 3 4 5 6

(b)

150 200 240 180 300 200

Legal Min.* $52 52 52 52 52 52

Earned $45.00 60.00 72.00 54.00 90.00 60.00

Amount Paid $52 60 72 54 90 60

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.

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 1 TOP: AACSB - Analytic

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

8 8 8 8 8

350 280 320 290 300

Monday Tuesday Wednesday Thursday Friday (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: Hours Worked

Monday Tuesday Wednesday Thursday Friday

8 8 8 8 8

Pieces Finished 350 280 320 290 300

Earnings @ $15.00/hr

Earnings @ $.40/unit

$120 120 120 120 120 $600

$140 112 128 116 120 $616

Make-up Guarantee $ 8 4 $12

(b) Work in Process Factory Overhead Payroll

616 12

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 1, 3 TOP: AACSB - Analytic

628

Payroll Earnings $140 120 128 120 120 $628

3. Payroll records for selected employees of Tomco Industries for the forty-sixth week of the year are as follows:

Employee R. Shuey K. Dye J. Rudnick L. Guzzino A. Busse

Salary or wage based on 40 hour week

Classification President Sales Manager Direct Labor Direct Labor Indirect Labor

$3,000 2,500 800 600 400

Hours Worked

Income Tax Withheld

40 40 42 46 44

$600 500 100 150 80

Gross Wages through 45th week $135,000 98,000 4,500 28,000 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) Employee Shuey Dye Rudnick Guzzino Busse Total

Regular Wages or Salary

Overtime Premium

$3,000 2,500 840 690 440

Total

20 45 20

Computations

$3,000 2,500 860 800/40=20; 42x20=840; 2x10=20 735 600/40=15; 46x15=690; 6x7.50=45 460 400/40=10; 44x10=440; 4x5=20 $7,555

(b) Employee Shuey Dye Rudnick Guzzino Busse Total

Cumulative Earnings Week 45 $135,000 98,000 4,500 28,000 7,800

Earnings Week 46 $3,000 2,500 860 735 460

Cumulative Earnings Week 46 $138,000 100,500 5,360 28,735 8,260

FICA $ 160.00 68.80 58.80 36.80 $324.40

FUTA

SUTA

Total

$ $ $ 160.00 8.60 34.40 111.80 58.80 2.00 8.00 46.80 $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. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

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% F28 M14 Idle Total

Sun 4

4

Mon 4 3 1 8

Tues 4 2 1 7

Wed 4 5

Thur 4 4 8

9

Fri 4 6

Sat 4

10

4

Total 28 16 6 50

ANS: a. $570 Regular Pay Premium

$500 $ 70

(50 hours x $10) (4 hours x $10) + (6 hours x $5)

b. Work in Process* Factory Overhead** Payroll * **

Work in Process: Factory Overhead:

440 130 570 (28 hours x $10 ) + (16 hours x $10 ) = $440 (6 hours x $10) + $70 overtime premium = $130

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 3 TOP: AACSB - Analytic

5. The Wagner Company’s Schedule of Earnings and Payroll Taxes for May is summarized as follows: Gross Earnings Non-Factory Employees: Sales Administrative Factory Employees:

$ 8,000 9,000 17,000

FICA 8% $

640 720 1,360

FUTA 1% $ 80 90 170

SUTA 4% $

320 360 680

Total Taxes $1,040 1,170 2,210

Direct Labor: Regular Overtime Premium Idle time Indirect Labor Total

32,000 5,000 3,000 18,000 58,000 $75,000

2,560 400 240 1,440 4,640 $6,000

320 50 30 180 580 $750

1,280 200 120 720 2,320 $3,000

4,160 650 390 2,340 7,540 $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 Administrative Salaries Work in Process (32,000 + 5,000) Factory Overhead (18,000 + 3,000) Payroll

8,000 9,000 37,000 21,000 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 Administrative Salaries Work in Process Factory Overhead (18,000 + 3,000 + 5,000) Payroll

8,000 9,000 32,000 26,000 75,000

Since overtime was the result of random scheduling of jobs, the overtime premium would be charged to Factory Overhead. (b) Factory Overhead Payroll Tax Expense - Sales Salaries Payroll Tax Expense - Admin. Salaries FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

7,540 1,040 1,170 6,000 750 3,000

REF: P. OBJ: 3 TOP: AACSB - Analytic

6. The following payroll summary is prepared for the Sothern Manufacturing Company for the week ending March 29: Direct labor: Job No. 200 Job No. 201 Job No. 202 Total direct labor Indirect labor

$10,300 7,000 6,500 $23,800 6,200

Total gross payroll

$30,000

Payroll taxes and insurance are to be computed as follows: Employee's Share Federal income tax withheld State unemployment tax Federal unemployment tax FICA tax Disability insurance Workmen's compensation insurance

Employer's Share

$4,300

8.0% .5%

5.0% 1.0% 8.0% .25% 2.0%

Prepare the general journal entries to: a. b. c. d.

Record the payroll. Pay the payroll. Distribute the payroll to the appropriate accounts. Record the employer's share of payroll tax expense. (All of the employees work in the factory.)

ANS: (a)

(b) (c)

(d)

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

30,000

Wages Payable Cash

23,150

Work in Process Factory Overhead (Indirect Labor) Payroll To distribute payroll.

23,800 6,200

23,150

30,000

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

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

2,400 4,300 150 23,150

4,875 2,400 75 1,500 300 600

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 Job B280 Machine maintenance Total

Tues 8 8

Wed 5 4 9

Thur 6 2 8

Fri

Sat

10

10

10

10

2 1 3

Total 41 7 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) (b)

(c)

Calculate Tyler’s gross and net pay. 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 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. 8 hours x $ 7.50/hr. (15.00/.5) Total gross pay Deductions: FIT Withholding $780 x 10% FICA - Employee portion $780 x 8% Health insurance premium Total deductions Net Pay (b)

$720.00 60.00 $780.00 $ 78.00 62.40 20.00 $160.40 $619.60

Payroll Employees’ Income Tax Payable FICA Tax Payable Health Insurance Premium Payable Wages Payable To record payroll

780.00

Work in Process (41 hrs. x $15) Factory Overhead (7 hrs. x $15) + $60 (Overtime) Payroll To distribute payroll

615.00 165.00

Wages Payable Cash To record payment of payroll

619.60

(c) Year-to-date payroll, March 3 Earnings March 4 - 10 Year-to-date payroll, March 10 Subject to FUTA and SUTA

78.00 62.40 20.00 619.60

780.00

619.60

$7,500 780 $8,280 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) SUTA ($500 x 4%) FUTA ($500 x 1%)

$62.40 20.00 5.00 87.40

Factory Overhead FICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable To record employer’s payroll taxes PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

62.40 20.00 5.00

REF: P. OBJ: 3 TOP: AACSB - Analytic

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: Cutting Department Splicing Department Sanding Department Joining Department

Direct

Indirect

2,200 2,400 1,850 4,250

250 200 125 325

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 Federal income tax State income tax Federal unemployment tax State unemployment tax

8.0% 12.0% 2.0% 1.0% 5.0%

Prepare journal entries to record: a. b. c. d.

The payroll. The payment of the payroll. The payroll distribution. The employer's payroll tax expense.

ANS: (a)

Payroll* FICA Tax Payable ($143,350 x 8% ) Federal Income Tax Withheld ($143,350 x 12%) State Income Tax Payable ($143,350 x 2% )

143,350.00 11,468.00 17,202.00 2,867.00

Salaries and Wages Payable To record payroll. *(10,700 x $10) + (900 x $8.50) + $16,500 + $12,200 (b)

(c)

111,813.00

Salaries and Wages Payable Cash To pay payroll.

111,813.00

Work in Process (10,700 x $10 ) Factory Overhead (900 x $8.50) Administrative Salaries Sales Salaries Payroll To distribute payroll.

107,000.00 7,650.00 16,500.00 12,200.00

111,813.00

143,350.00

(d)

Factory Overhead* Payroll Tax Expense**-Sales and Administrative Salaries FICA Tax Payable ($143,350 x 8%) Federal Unemployment Tax Payable ($143,350 x 1%) State Unemployment Tax Payable ($143,350 x 5%) 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 PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

16,051.00 4,018.00 11,468.00 1,433.50 7,167.50

REF: P. OBJ: 3 TOP: AACSB - Analytic

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 FICA FUTA SUTA

15% on all earnings 8% on first $100,000 of earnings 1% on first $8,000 of earnings 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: Regular wages Overtime premium

$27 x 46 hr. $13.50 x 6 hr.

Employer payroll tax FICA

* $1,323 x 8%

Fringe benefits ** Vacation Holiday

$27 x 40 hours = 1,080 x 6 = 6,480/46 = 5 days paid = 1,080/46

Total $1,242.00 81.00

$1,323.00

105.84

140.87 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 NAT: IMA 2B - Cost Management

REF: P. OBJ: 3, 5 TOP: AACSB - Analytic

10. Tacy Company’s Schedule of Earnings and Payroll taxes for the period ended March 28 - 31 to be paid April 5 follow: Gross Wages Non-factory: Sales Administrative Factory: Direct labor Overtime premium Indirect labor

FICA

SUTA

$ 7,500 4,000 11,500

$

$

52,000 4,500 10,000 66,500 $78,000

4,160 360 800 5,320 $6,240

600 320 920

Total payroll taxes

FUTA

240 112 352

$ 60 28 88

$

2,080 180 400 2,660 $3,012

520 45 100 665 $753

6,760 585 1,300 8,645 $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 Wages Payable To accrue payroll for the period Mar. 28 - 31

78,000

(b) Work in Process Factory Overhead (10,000 + 4,500) Sales Salaries Administrative Salaries Payroll To distribute payroll for period Mar. 28 - 31

52,000 14,500 7,500 4,000

(c) Factory Overhead Payroll Tax Expense - Sales Salaries Payroll Tax Expense - Administrative Salaries FICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable To recognize employer’s payroll taxes for the period Mar. 28 - 31. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

78,000

78,000

8,645 900 460

REF: P. OBJ: 4 TOP: AACSB - Analytic

6,240 3,012 753

900 460 1,360

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 Factory Overhead (bonus) Factory Overhead (vacation) Factory Overhead (holiday pay) Payroll Bonus Liability* Vacation Pay Liability** Holiday Pay Liability*** * Bonus: ** Vacation: *** Holiday pay:

$2,500 / 50 weeks $1,000 x 2 weeks $1,000 / 5 days $1,400 / 50 weeks

PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

$1,000 50 40 28 1,000 50 40 28

= $50 per week = $2,000 / 50 = $40 per week = $200 per day  7 = $1,400 = $28 per week REF: P. OBJ: 5 TOP: AACSB - Analytic