Dave Rigby is paid $20 an hour for straight-time and $30 an hour for overtime. One week he worked 45 hours, which included 5 hours of overtime, and 3 hours of idle time caused by material shortages. Compensation would be reported as:
A)$740 of direct labor and $210 of manufacturing overhead
B)$840 of direct labor and $110 of manufacturing overhead
C)$900 of direct labor and $50 of manufacturing overhead
D)$890 of direct labor and $60 of manufacturing overhead

Question

Quizplus · Accepted Answer

Direct labor cost = (straight-time hours x straight-time rate) + (overtime hours x overtime rate)
= (40 x $20) + (5 x $30)
= $800 + $150
= $950

However, there were 3 hours of idle time caused by material shortages. This idle time is not considered productive and therefore cannot be included in direct labor cost. It will be reported as manufacturing overhead.

Manufacturing overhead = Idle time x Straight-time rate
= 3 x $20
= $60

Therefore, the total compensation reported would be $840 of direct labor and $110 of manufacturing overhead.

Dave Rigby Is Paid $20 an Hour for Straight-Time and $30