An important function of cost accounting is accounting for labor costs and related fringe benefits.

An important function of cost accounting is accounting for labor costs and related fringe benefits.

(a) Define direct labor and indirect labor.

(b) Discuss reasons for distinguishing between direct and indirect labor.

(c) Give three costing methods of accounting for the premium costs of over- time direct labor. State circumstances under which each method would be appropriate.

(d) The Northgate Company has expensed vacation pay on the cash basis in prior years and is considering changing to the accrual basis in the next fiscal period. What would be the effects of this change upon the next fiscal period's annual financial statements?

(AI CPA adapted)

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