When workers put in hours beyond their normal shift, the factory doesn't just pay them for extra time — it pays a premium (typically double the normal rate under the Factories Act, 1948). That extra cost needs to go somewhere in your books, and where it goes depends entirely on why the overtime happened. That 'why' is the entire exam topic.
First, get the terminology right. If Ramesh earns ₹100/hour normally and gets ₹200/hour for overtime, his total overtime pay is ₹200/hour. But we split this into two parts: the normal rate portion (₹100) and the overtime premium (₹100 — the extra bit). The normal rate portion is always charged to the job or cost centre as direct wages. The treatment of the overtime premium is what changes based on the reason.
There are three situations you must know cold. Situation 1 — Specific customer request: If a customer (say, Arjun Electronics Pvt. Ltd.) urgently needs their order finished and asks you to work overtime, the entire overtime premium is charged directly to that job. The customer caused it, so the customer bears it. Situation 2 — General pressure of work / seasonal rush: No single job is responsible. The overtime premium is treated as factory overhead and spread across all jobs using the normal overhead absorption rate. Situation 3 — Abnormal reasons (machine breakdown, flood, power cut, strike): The overtime was unavoidable and not a real production cost. The premium is written off to the Costing Profit & Loss Account (i.e., treated as an abnormal loss, not loaded onto products). A useful memory hook: specific job → debit the job; general → overhead; abnormal → P&L.
One more nuance for exams: overtime worked by indirect workers (supervisors, maintenance staff) — the full overtime pay including premium is treated as overhead, not direct wages, regardless of the reason. Their wages are never direct in the first place.