Question

When Overtime Is Required For Meeting

Urgent Orders, Overtime Premium Should
Be


1:-charged To

Costing Profit And

Loss Account

2:-Charge To

Overhead Cost

3:-Charge To

Respective Jobs
4:- ignored​

Answer 1

charged to costing profit and loss account

Answer 2

Answer:

Charged to overhead cost is the correct answer.

Explanation:

Overtime premium - Overtime is the amount of wages paid for working normal working hours as specified by the Factories Act or by a mutual agreement between the workers union and the management. There is a practice of paying for overtime work at higher rates.

              Hence, overtime payment consists of elements, the normal wages amount and the extra payment, i.e .. the premium. This extra payment paid to a worker under overtime is known as an overtime premium.

Treatment of Overtime Premium in Cost Accounting -

a ) If overtime is resorted to at the customer's desire, then overtime premium may be charged to the job directly.

b) If overtime is required to cope with the general production program or for meeting urgent orders, the overtime premium should be treated as the overhead of the particular department or cost center which works overtime.

c ) An overtime premium should be charged to the latter department if overtime is worked.

d ) Overtime worked for abnormal conditions such as floods, earthquakes, etc., should not be charged to cost but to costing profit and loss A/C.

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