Accounting for Labour Costs by lhs84167


									                                                                               CMAI W07
Accounting for Labour Costs

1.   Distinguish between the different treatment of direct and indirect labour costs.

            Direct labour – charge to ____________________________

            Indirect Labour – charge to ___________________________

            Employer share of employee benefits, payroll taxes etc. are charged to

            Selling & Administration salaries are charged to __________________
             or ________________________. Selling & Administration benefits
             are charge to _______________________________________.

2.   Various payroll taxes and fringe benefits are paid in whole or part by the employer.

               Deduction                  Employee Rate             Employer Rate
     Employment Insurance (EI)

     Canada Pension Plan (CPP)

     Employer Health Tax (EHT)

     Company Pension Plan

     Vacation Pay

     Supplementary Health Benefits

3.   Accrued Payroll Account
         Used to record and clear the _________________________

         Typically has a __________ balance and is similar to _______________
          except it represents ________________ costs rather than ________.
                                                                             CMAI W07
       Since the amount of gross payroll paid in a month rarely equals the gross
        payroll cost incurred in the month there is always a credit balance in the
        accrued payroll account. i.e. the debit amount and the credit amount cover
        different time periods.

       Under this system, there is no need for month end adjusting entries – the
        ending balance is the month end accrual.

                                   Accrued Payroll

       Note: employer share of payroll taxes and benefits can either be based on the
        total debits for a month or the total credits for a month in the accrued payroll

       It is more theoretically sound to base employee benefit costs on _________
        ____________ in the month (credit side) than payrolls ____________
        in the month. This is the method we will use, however many smaller businesses
        base their payroll taxes and benefits on payrolls ___________ (debit side).

       Remittance of payroll taxes to the government is based on payrolls _______
        in the month rather than payroll costs ________________.

       But it is more accurate to record the costs and benefits on the basis of costs
        incurred and spread them over the whole year.

       When EI and CPP maximum limits are reached for individual employees (often
        between September and November), the cost to the employer ___________
        significantly for the latter part of the year. However, many larger companies
        want this cost spread over all twelve months-----the period when the related
        labour costs were incurred. Therefore, they use a “__________” rate for EI
        and CPP that spreads the employer cost over twelve months. This feature is
        built into more advanced computer systems and cannot be undertaken by
        smaller businesses.

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