Labor direct

Direct labor costs can be estimated usiag the flow sheet, typical labor needs (persons /shift) for each piece of process equipment, and the local labor rate. Company files are the best source for labor needs and rates, although some Hterature data are available (1,2). The hourly cost of labor ia the United States can be estimated from the M.onthly l bor Review of the Bureau of Labor Statistics. Production supervision costs can usually be taken as a factor, such as 15% of the direct labor cost. 

Annual iadirect costs are estimated as percentages of the direct labor and fixed capital costs. Typical direct labor percentage ranges are 25—30% for payroll overhead, 15—20% for stores and suppHes, 10—20% for control laboratory, 10—20% for security, 10% for yard, and 10—15% for process improvements. That is, total iadirect costs are usually 80—115% of the direct labor cost (1). 

Revenue expenditure includes the direct material costs and direct labor costs incurred in the manufac ture of a produc t, together with the associated overheads that include maintenance of the plant. Since these expenses are debits, the debit balance for a given accounting period is obtained by adding up the debit balances from each individual expenditure account. Similarly, since revenues from sales and other income are credits, the credit balance for a given accounting period is obtained by adding up the credit balances from each individual income or revenue account. 

Cost accounting is the name traditionally given to accounting for manufacturing costs. The manufacturing cost of a product is traditionally taken as the sum of the costs for (1) direct materials, (2) direct labor, (3) manufacturing overheads, and (4) administration, selhng, and finance. 

Overheads in the chemical-process industries are commonly calculated as a percentage of (I) direct materials cost, (2) direct labor cost, or (3) prime or direct costs. Other methods of allocating overheads are on the basis of (I) plant area, (2) number of employees, (3) capital value, and (4) elec tric power. 

Let us consider the manufac ture of metal ornaments. The processing cost, exclusive of material, may vaiy veiy httle for a wide range of materials. However, the direct materials cost will be much greater for precious than for base metals. In this case, an overhead allocation on the basis of direct material costs could be veiy misleading, while one based on direct labor cost could be quite accurate. 

Problems can also arise when allocating overheads on the basis of direct labor cost. Let us consider a company that evaluates overheads at 125 percent of direct labor cost. A process plant employs seven operators, each with a direct cost of 10,000 per budget period. As a result of a works-study exercise, it is found that the plant can operate satisfactorily with six operators. The ac tual cost saving is hkely to oe far nearer to the direct labor savings of 10,000 per period than to the calculated saving of 10,000 -t- 10,000(125/100) = 22,500 per period. The 22,500 calculated saving is the direct labor cost plus overheads taken as 125 percent of the direct labor cost. 

A thorough analysis should be made before production is stopped on a product that is losing money. Although direct costs of the discontinued product will be saved, overheads are not ehminated, as might be inferred from taking overheads as a percentage of direct material, direct labor, or prime costs. The plant is stiU there, together with its... 

Example 19 Overhead in Two Dijferent Projects Let us consider a plant that can make either product A or product B. At normal capacity, the overhead cost is known to he 2.50 per unit. Product A has a direct materials cost of 8 per unit and a direct labor cost of 2 per unit. For simplicity, the prime cost is here taken as the sum of these two costs, i.e., 10 per unit. 

In Table 9-28, a correct overhead cost of 2.50 per unit at normal capacity is calculated by taking either 31.25 percent of the direct materials cost, 125 percent of the direct labor cost, or 25 percent of the prime cost. AU these methods give a total cost of 12.50 per unit and a profit of 1.50 per unit for a selling price of 14 per unit. 

An alternative to allocating overheads by using a single method is to classify the various overheads into groups and to use the most appropriate allocation for each group. For example, depreciation would be allocated on the basis of capital cost, while indirect labor might be allocated either on the basis of direct labor cost or on the number of employees. Clearly, this alternative method is more complex, increases the associated accountancy costs, and is prone to misinterpretation and possibly abuse. 

Direct material plus direct labor plus other direct production expenses. (This is the total variable production cost.)... 

Direct labor cost Wage rate Labor efficiency... 

Direct materials cost Direct labor cost Overhead cost Manufacturing cost Revenue from sales Gross profit... 

Raw-materials cost, /unit Direct labor cost, /unit Production rate, units/period Production time h/period Fixed and semivariahle overhead cost, /period Variable overhead cost, /h Overhead cost, /period... 

Variances Direct Labor Cost Since the variance in direct labor cost A (0Cl) is the difference between actual cost and standard cost. 

From Eq. (9-219) we calculate the direct-labor-cost variance as 3401 per period. This variance is unfavorable. However, by using the relations of Eq. (9-220), we calculate a direct pay, or wage-rate, variance of 0(cl — Cl) = 6509(8.45 — 8.00) = 2929 per period. This direct pay variance is unfavorable. Likewise, we calculate the direct-labor-efficiency variance as Cl(0 — 0 ) = 8.00(6509 — 6450) = 472 per period. This variance is also unfavorable. 

For this example, the adverse direct-labor cost variance of 3401 is due to both a hi er wage rate per hour and a higher number of labor-hours. 

The direct-labor-cost variance can, if necessary, be broken down into a direc t-labor-idle-time variance in addition to the direct-wage-rate and direct-labor-efficiency variances. The direc t-labor-idle-time variance is simply the number of idle labor-hours in the period multiplied by the standard wage rate. This is rarely relevant to the conditions existing in process plants except when maintenance is involved. 

Tier 0 Usual or normal costs, such as direct labor, raw materials, energy, equipment, etc. 

Based on the survey, the actual costs normally associated with the maintenance operation were reduced by more than 50 per cent. The comparison of maintenance costs included the actual labor and overhead of the maintenance department. It also included the actual materials cost of repair parts, tools and other equipment required to maintain plant equipment. The analysis did not include lost production time, variances in direct labor or other costs that should be directly attributed to inefficient maintenance practices. 

Overhead The cost of payroll taxes and fringe benefits for everyone directly working on the project for the time spent on it. Usually calculated as a percentage of direct labor cost. 

The use of contractors to carry out work that may in the past have been done by direct labor or during a normal sub-contract does not relieve the company from the responsibility of ensuring that all those working on their premises do carry out their work in a safe manner. The following contractor s conditions and safe working practices should form a part of the company s health and safety policy manual. 

Basically the variable cost elements are those elements of piece cost whose values are dependent on the number of pieces produced. For most plastics fabrication processes the principal variable cost elements are the material, direct labor, and energy costs. 

Direct labor expense The expense of labor involved in the manufacture of a product or in the production of a service. 

Net sales are the primary source of revenue from goods and services. This figure includes the amount reported after returned goods, discounts, and allowances for price reductions are taken into account. Cost of sales represents all the expenses to convert raw materials to finished products. The major components of these expenses are direct material, direct labor, and overhead. If the cost of sdes is subtracted from net sales, the result is the gross margin. One of the most important items on the income statement is depreciation and amortization. Depreciation is an allowance the federal government permits for the... 

To optimize direct labor costs versus investment costs by the mechanization of material-handling operations... 

Direct labor (operators) Unit/ batch Production volume (adjusted for capacity requirements) or number of batches Linear Average batch size if number of batches used... 

Other costs which were identified but not included in many of the studies, primarily because of the difficulty in quantifying their effect, are costs from increased weed resistance to herbicides replacing the triazines direct labor and management costs of developing and using new weed control practices and increased erosion damage costs, such as siltation of lakes, subsequent water recreation reduction, and lower land productivity. The economic impact due to weeds becoming resistant to the triazines was found to be minor. 

Shows the number of hours and the cost of the direct labor to be used during the budget period... 

When several products or by-products are produced by the same plant, allocation of the cost to each product must be made on some predetermined basis. Although the allocation of raw-material and direct labor costs can be determined directly, the exact distribution of overhead costs may become quite complex, and the final method depends on the policies of the particular concern involved. 

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