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Problem 13

# Describe the overtime-premium and idle-time categories of indirect labor.

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The overtime premium is an additional pay given to employees working beyond their regular hours, typically over 40 hours per week, and is considered an indirect labor cost. For example, an employee that works 45 hours in a week with a 50% premium for overtime will earn extra pay for the additional 5 hours worked at a higher rate. Idle time refers to periods when employees are present at work but unable to perform their job duties due to factors beyond their control, such as equipment breakdowns or material shortages. The wages paid during idle-time are considered indirect labor costs since they do not contribute to the production process.
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## Step 1: 1. Definition of Overtime Premium

Overtime premium refers to the additional pay given to employees who work more than their regular working hours, typically over 40 hours per week. Overtime premium is considered as an indirect labor cost because it doesn't directly contribute to the production of goods or services and instead serves as an added expense to compensate employees for their extended work hours. The overtime premium is calculated as the difference between an employee's regular pay rate and the higher overtime pay rate multiplied by the number of overtime hours worked. For example, if an employee works 45 hours in a week and earns a 50% premium for overtime, their overtime premium would be calculated based on the extra 5 hours worked at the higher pay rate.

## Step 2: 2. Definition of Idle Time

Idle Time refers to the periods when employees are present at work but are unable to perform their job duties due to factors that are beyond their control. These factors can include equipment breakdowns, material shortages, waiting for instructions, or any other situations that prevent them from directly contributing to the production of goods or services. The wages paid to employees during idle-time are considered indirect labor costs since they do not contribute to the production process.

## Step 3: 3. Overtime Premium Example

To illustrate overtime premium, let's consider an employee named John who earns $$20 per hour for a 40-hour work week. One week, John ends up working 45 hours. Since John worked 5 hours of overtime, he is eligible for overtime premium. If the overtime premium rate is 1.5 times the regular pay rate, then John's hourly overtime rate would be$$30 per hour ($$20 x 1.5). The overtime premium for John's additional 5 hours would be$$50 (5h x ($$30-$$20)) for that week.

## Step 4: 4. Idle Time Example

To illustrate idle time, let's consider a manufacturing plant where employees are assembling products. One day, the assembly line experiences a mechanical issue, causing the entire line to shut down for 3 hours. During this time, the employees on the assembly line are unable to work on the products, but they are still being paid their regular hourly wage. The wages paid to the employees during these 3 idle hours are considered an indirect labor cost since they did not actively contribute to the production of goods during that period. By understanding both overtime premium and idle-time categories, we can effectively identify and manage indirect labor costs in a business.

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