Study Guide Solutions -- Chapter 3



CHAPTER 3 SOLUTIONS

Part I Part II

1. F 6. T 11. T 1. d 8. c 15. r

2. F 7. T 12. T 2. i 9. q 16. o

3. T 8. F 13. F 3. h 10. s 17. j

4. T 9. T 14. T 4. p 11. b 18. n

5. T 10. T 15. T 5. m 12. e 19. k

6. t 13. g 20. l

7. a 14. f

Part III

1. (c) A modified wage plan directs management’s attention to the employees who were unable to meet quotas because it is likely those employees would be paid the make-up guarantee more often than other, more productive employees.

2. (a) The labor time record is needed to provide evidence of the employee’s presence in the plant from the time of entry to departure, and shows the employee’s time spent on each job.

3. (d) Fringe costs form a substantial element of labor cost to the employer and include such items as the employer portion of the FICA tax, holiday pay, overtime premium pay, and pension costs.

4. (c) A piece-rate plan is an incentive wage plan that bases earnings on the employee’s quantity of production.

5. (b) Theoretically, the employer’s share of the payroll taxes should be charged to the same accounts as the direct and indirect labor. However, due to the additional expense and time required for such allocation, all factory payroll taxes are usually charged to Factory Overhead.

6. (d) In determining whether the overtime premium should be charged to a specific job or spread over all jobs via the factory overhead rate, the key consideration is whether the job was worked on during the overtime period because it was a rush order or merely as a result of random scheduling.

$800 × 4 weeks

7. (d) = $66.67

48 weeks

8. (b) To spread the bonus cost over production throughout the year via the predetermined factory overhead rate, the weekly entry would include a debit to Factory Overhead for the ratable portion of the bonus pay.

9. (c) Employee withholdings are not included in the payroll accrual because they do not affect the employer’s income or total liabilities.

10. (b) The overtime premium (8 hours x $10 = $80) and the time spent maintaining machinery (12 hours x $20 = $240) would have been charged to Factory Overhead (Total of $320).

Part IV

Earnings at Piece-rate Make-up Daily Labor Cost

Day $10 per Hour Earnings Guarantee Earnings per Unit

Monday $80 $ 75 $ 5 $ 80 $2.67

Tuesday $80   80  –   80  2.50

Wednesday $80  115  –  115  2.50

Thursday $80   70  10   80  2.86

Friday $80   85  –   85  2.50

Part V

1.

| |Frease |Redford |McLean |Love |Total |

|Hours worked | |40 |46 |40 | |

|Piecework |780 | | | | |

|Rate (hourly/piece) |$.50 |$7.00 |$8.80 |$12.20 | |

|Direct labor |$390.00 | |$404.80 | |$794.80 |

|Indirect labor | |$280.00 | |$488.00 |$768.00 |

|Overtime premium | | |  26.40 | |    26.40 |

|Gross pay |$390.00 |$280.00 |$431.20 |$488.00 |$1,589.20 |

|Income tax (15%) |$ 58.50 |$ 42.00 |$ 64.68 |$ 73.20 |$  238.38 |

|FICA tax (8%) |31.20 |22.40 |34.50 |39.04 |127.14 |

|Health insurance (3%) |  11.70 |   8.40 |  12.94 |  14.64 |   47.68 |

|Total deductions |$101.40 |$ 72.80 |$112.12 |$126.88 |$  413.20 |

|Net pay |$288.60 |$207.20 |$319.08 |$361.12 |$1,176.00 |

2. (a) Payroll 1,589.20

FICA Tax Payable 127.14

Employees Income Tax Payable 238.38

Health Insurance Premiums Payable 47.68

Wages Payable 1,176.00

(b) Wages Payable 1,176.00

Cash 1,176.00

(c) Work in Process 794.80

Factory Overhead* 794.40

Payroll 1,589.20

(d) Factory Overhead 206.60

FICA Tax Payable 127.14

Federal Unemployment Tax Payable** 15.89

State Unemployment Tax Payable*** 63.57

* $280.00 + 488.00+ $26.40

** Federal unemployment tax = $1,589.20 × 1% = $15.89

*** State unemployment tax = $1,589.20 × 4% = $63.57

Part VI

1. Work in Process* 1,100

Payroll 1,100

2. Work in Process** 1,000

Factory Overhead*** 100

Payroll 1,100

*(50 hrs. x $20) + (10 hrs. x $10)

** 50 hrs. x $20

*** 10 hrs. x $10

Part VII

Work in Process 4,400.00

Factory Overhead (Bonus)* 400.00

Factory Overhead (Vacation)** 400.00

Factory Overhead (Holiday Pay)*** 184.62

Payroll 4,400.00

Bonus Liability 400.00

Vacation Pay Liability 400.00

Holiday Pay Liability 184.62

* $4,400 ÷ 11 months

** $4,400 ÷ 11 months

*** $4,400 x 12 months = $52,800/52 weeks = $1,015.38

$1,015.38 x 2 weeks = $2030.77 holiday pay / 11 months = $184.62

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