Direct labor cost
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Direct labor costs are costs that can be precisely and unambiguously attributed to a given cost object. Physical observation can be used to measure the quantity of labor used to produce a specific product or provide a service. The direct labor cost of making a product includes the cost of transforming raw materials into a product[1]
Direct labor costs in general
Costs that are assigned to cost objects can be divided into two broad categories[2]:
- Direct costs;
- Indirect costs.
Both categories can be further divided into direct and indirect materials and direct and indirect labor costs[3]. Direct labor costs are costs that can be specifically and exclusively identified with a particular cost object[4].
More in detail direct labor cost is the total wages or salaries paid to direct labor personnel. Direct labor cost should include basic compensation, production efficiency bonuses, and the employer’s share of Social Security and Medicare taxes. In addition, if a company’s operations are relatively stable, direct labour cost should include all employer- paid insurance costs, holiday and vacation pay, and pension and other retirement benefits[5].
Footnotes
References
- Drury, C. (2017). Management and Cost Accounting. Cengage Learning.
- Jain P., Bhati A. (2015), Cost Accounting and Cost Control System in Textile Industry in India, Department of Accountancy and Business Statistics, Jaipur
- R. Kinney, M., & A. Raiborn, C. (2011). Cost Accounting: Foundations and Evolutions, Eighth Edition. Cengage Learning.
Author: Annija Petersone
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