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    Question

    A factory incurred overtime wages under the following

    situations: ·        Extra hours worked to complete a specific urgent export order. ·        Extra hours worked due to seasonal rise in overall production demand. ·        Extra hours worked due to machine breakdown and unexpected stoppage. How should these overtime costs be treated respectively under cost accounting principles?
    A Prime cost; Factory overhead; Costing Profit & Loss Account Correct Answer Incorrect Answer
    B Factory overhead; Prime cost; Factory overhead Correct Answer Incorrect Answer
    C Prime cost; Prime cost; Factory overhead Correct Answer Incorrect Answer
    D Factory overhead; Factory overhead; Prime cost Correct Answer Incorrect Answer
    E Prime cost; Costing Profit & Loss Account; Factory overhead Correct Answer Incorrect Answer

    Solution

    Overtime cost treatment will differ based the situation as follows: ·        Overtime for Specific or urgent job - If overtime is due to urgent, specific customer orders, or directly traceable to a particular order, the entire cost (regular pay + premium) is directly charged to that job. In such case, it will be a direct cost and form part of prime cost ·        Overtime for general production - If overtime arises from general production bottlenecks, seasonal demand, or inefficient scheduling, or labour shortage, it is often treated as indirect labor and charged to factory overhead, not prime cost. Abnormal Reasons: If overtime is caused by issues like machine breakdown, it is considered an abnormal cost and charged to the Costing Profit & Loss Account, excluded from both prime cost and overheads. 

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