Direct Labor Cost

What are Direct Labor Costs?

Direct labor cost is the gross wage cost of all the labor associated with a particular job. The labor included must relate to those employees who are directly working on the item being produced.

The labor must be easily tracked, measured and allocated to a unit product for it to be classified as a direct labor cost, if not then the cost is termed an indirect labor cost.

For example, if a piece of furniture is being made, then the wage cost of the person producing the furniture would be a direct labor cost. It is easy to keep track of the amount of time spent in the production of the piece of furniture.

However, other labor is also used such as maintenance staff for the factory producing the furniture. This labor cannot be directly allocated to a unit of production and would be regarded as indirect labor, forming part of manufacturing overhead.

For further information on direct material cost see see the Wikipedia definition.

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Last modified March 23rd, 2016 by Team

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