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Direct labor cost is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service. Also, we can say it is the cost of the work done by those workers who actually make the product on the production line.
In construction, the costs of materials, labor, equipment, etc., and all directly involved efforts or expenses for the cost object are direct costs. In manufacturing or other non-construction industries, the portion of operating costs that is directly assignable to a specific product or process is a direct cost. [4]
For the purpose of UNICAP, direct costs include direct material costs (the costs of those materials that become an integral part of specific property and those materials that are consumed in the ordinary course of production) and direct labor costs (labor includes full-time and part-time employees, as well as contract employees and independent contractors and, overtime pay, vacation pay ...
The third step is to compute the predetermined overhead rate by dividing the estimated total manufacturing overhead costs by the estimated total amount of cost driver or activity base. Common activity bases used in the calculation include direct labor costs, direct labor hours, or machine hours.
Labor costs are direct costs, that is, they can be identified among the total cost and assigned to a certain cost objective. [1] Labor costs are defined by categories (e.g. service labor or manufacturing labor), the attribution of a labor rate for each category, and a certain number of labor hours. [1]
Manufacturing cost is the sum of costs of all resources consumed in the process of making a product. The manufacturing cost is classified into three categories: direct materials cost, direct labor cost and manufacturing overhead. [1] It is a factor in total delivery cost. [2]
Indirect labor costs are the wages paid to other factory employees involved in production. Costs of payroll taxes and fringe benefits are generally included in labor costs, but may be treated as overhead costs. Labor costs may be allocated to an item or set of items based on timekeeping records. Costs of materials include direct raw materials ...
For a business which produces clothing, variable cost would include the direct material, i.e., cloth, and the direct labor. If the business uses a room, a sewing machine , and 8 hours of a laborer's time with 6 yards of cloth to make a shirt, then the cost of labor and cloth increases if two shirts are produced, and those are the variable costs.