1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 Charging Labor Costs into Production

2. 6-2 Introduction Labor costs, charged to production. –Direct labor to Work in Process –Indirect labor to manufacturing overhead –To charge correct amounts, wages must be allocated between direct and indirect labor

3. 6-3 Labor Cost Analysis Time tickets –First step in allocating labor cost between direct and indirect labor –Used to identify the specific job or department that needs to be charged –Idle time, non productive time that cannot be allocated to any specific job Considered as manufacturing overhead

4. 6-4 Analysis of time tickets Shows the direct labor cost: –Incurred on each job by each department –Incurred for each department Also indicates the indirect cost

5. 6-5 Analysis of Semimonthly Payroll Represents wages earned by employees, on a fixed monthly salary Indirect wages paid in each department are entered in the indirect labor column

6. 6-6 Analysis of Unpaid Wages Occurs due to the difference in the pay period –Direct labor posted in the job cost sheets –Indirect labor costs ate posted in the departmental overhead analysis sheets

7. 6-7 Transferring Labor Costs to Production Transfers are recorded in the general ledger accounts Summary of factory wages –Consists of time ticket analysis and semimonthly payroll analysis Balance of factory payroll clearing –Factory payroll clearing account is credited with both the paid and unpaid wages

8. 6-8 Flow of Costs

9. 6-9 Employer’s Payroll Taxes Employer is liable for several taxes that include: –Social security tax –Medicare tax –Federal unemployment tax (FUTA tax) –State unemployment tax (SUTA tax)

10. 6-10 Charging Payroll Taxes A four-step procedure: –Payroll department prepares a monthly summary of taxable wages by department. –Summary is used for calculating payroll taxes expense for the period –Payroll taxes are posted to the department overhead analysis sheet –General journal voucher is prepared to record taxes payable

11. 6-11 Fringe Benefits Tremendous growth in the cost of fringe benefits related to salaries and wages. –Can equal as much as 35 percent of salaries and wages paid –Recorded as manufacturing overhead expenses