Direct labor cost

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.

Determination of the direct labor cost
  • Planning the work to be performed.
  • Describing the job content of the work, by indicating the skill, knowledge, etc.
  • Matching the jobs with the employees.

Usage

The direct labor cost is part of the manufacturing cost.

Calculation of direct labor cost

In the direct labor cost we need to have the job time and wage we will pay it to the worker to calculate the direct labor cost as in this formulation:[1]-

Wage

The wage is the payment rendered to the worker per hour as a compensation for the work done.

Calculating job time

The job time needs to be measured by one of the following ways:[2]

  1. time study
  2. work sampling
  3. Predetermined motion time system
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See also

References
  1. Ostwald, P. F., McLaren, T. S. Cost Analysis and Estimating for Engineering and Management, Prentice Hall, 2004, ISBN 978-0-13-142127-1
  2. Kanawaty, G. Introduction to Work Study, International Labour Office, 1992, ISBN 978-92-2-107108-2
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