What Is Direct Labor Cost.Direct labor is that labor directly related to the transformation of the raw material in the manufacture of a product or the provision of a service.The cost of direct labor is established based on the salary of the hours worked, the days of work, the orders assigned according to each production process, social benefits, etc.The proper management of direct labor is very important in business management, since it significantly influences the final cost of products or services.
What Is Direct Labor Cost Why We Need Direct Labor Cost.
The objective of labor cost accounting is to record the time spent by all operatives on each activity on a separate job card or time sheet and then to apply the appropriate hourly rate. The labor costs are then charged to each of these activities; hence job cards, time sheets, idle time cards and so on are the source documents for analyzing production labor costs to various jobs or overhead accounts.
In most organizations all the illustrated source documents will exist only in the form of computer records, and the procedure outlined is likely to be carried out by a computer In respect certain categories at unproductive labor, such as supervisors and general laborers, it may not be possible to analyses the amount of time spent on various activities. The labor cost for these workers should be obtained from their personal record cards and charged to general factory or departmental overhead accounts for supervision of general labor.
Direct Labor Examples
In a textile factory, the workers who cut the cloth and operate the sewing machines are direct labor, while the department supervisors are indirect labor.In an automotive factory, the personnel in charge of the manufacture of the fenders or assembly and the upholstery of the vehicles is considered direct labor, while the employees in charge of surveillance and security are indirect labor.In a furniture factory, the personnel who are in charge of cutting and carving the wood together with the upholsterers are considered direct labor, while the accountant and the payer are considered indirect labor.In a dental office, dentists are considered direct labor . On the other hand, the auxiliary that supports the accounting records is considered indirect labor.