The gross earnings of the factory workers for Vargas Company during the month of January are $66,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits to be paid by the employer on this payroll are $6,000. Of the total accumulated cost of factory labor, 85% is related to direct labor and 15% is attributable to indirect labor.

Question

The gross earnings of the factory workers for Vargas Company during the month of January are $66,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits to be paid by the employer on this payroll are $6,000. Of the total accumulated cost of factory labor, 85% is related to direct labor and 15% is attributable to indirect labor.

Answer 1

The gross earnings of the factory workers for Vargas Company during the month of January are $66,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits to be paid by the employer on this payroll are $6,000. Of the total accumulated cost of factory labor, 85% is related to direct labor and 15% is attributable to indirect labor.

(a) Prepare the entry to record the factory labor costs for the month of January.
(b) Prepare the entry to assign factory labor to production.

Answer 2

To calculate the direct labor and indirect labor costs, we will start with the gross earnings of the factory workers, which in this case is $66,000.

The employer's payroll taxes for the factory payroll are given as $8,000, and the fringe benefits to be paid by the employer are $6,000. These costs are part of the total accumulated cost of factory labor.

To calculate the direct labor cost, we need to determine the amount that is directly attributable to the actual production of goods or services. Since 85% of the total accumulated cost of factory labor is related to direct labor, we can calculate it by multiplying the gross earnings by 85%:

Direct Labor Cost = Gross Earnings * 85%
= $66,000 * 0.85
= $56,100

Therefore, the direct labor cost is $56,100.

Now, to calculate the indirect labor cost, we know that it accounts for 15% of the total accumulated cost of factory labor. We can find the indirect labor cost by subtracting the direct labor cost from the total accumulated cost:

Indirect Labor Cost = Total Accumulated Cost - Direct Labor Cost
= $66,000 - $56,100
= $9,900

Therefore, the indirect labor cost is $9,900.

In summary, the direct labor cost is $56,100 and the indirect labor cost is $9,900.