In video 10, Illustration 5 why do we calculate Inflated Wage Rate, cant we proceed without calculating Inflated Wage Rate and what is Inflated Wage Rate.
Inflated wage rate is calculated for the purpose of costing to include holiday and leave wages. This can be done only in case of direct workers. In the question, it is asked to calculate labour cost when overtime is on regular basis due to shortage of workers. We just can't consider overtime payments as basic pay given to workers. And so, we calculate Inflated wage rate which is in simple terms average wage rate. Here we calculate the total wages payable to the worker as per basic and all the overtime done, then divide it with the total hours worked. This gives us the inflated wage rate per hour which includes both, a part of basic and a part of overtime.