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Labor cost per unit - direct labor only or fully burdened cost?

Allan Kaplan's Profile

I'm having a 'discussion' with our VP Operations as to what should be considered as part of labor cost per unit. I take the position that it should be a total burdened labor cost per hour (including employer costs, vacation, etc.). He takes the position it is direct labor only, and that the balance of the costs are indirect costs of goods sold. Thoughts?


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

According to "Cost Accounting, A Managerial Emphasis", 8th Ed by Horngren, Foster & Datar, Prentice Hall 1994, Page 41-42:

"...Examples include wages and fringe benefits paid to machine operators and assembly-line workers."

You win!

Topic Expert
Keith Perry
Title: Director of Global Accounting
Company: Agrinos, Inc.
(Director of Global Accounting, Agrinos, Inc.) |

Wayne; great quote. ;-)
Concurring that this is how we do it as well. The logic argument is "that which is variable with the individual employee is a labor direct cost."

Allan Kaplan
Title: CFO
Company: Euclid Systems Corporation
(CFO, Euclid Systems Corporation) |

Can I get you to scan that page and send it to me? akaplan98 @ gmail


Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

I consider the resource, not the cost components of the resource, to be direct or indirect. The person's time is the resource. If the person's efforts are "direct", the cost of that person is also direct. An estimate of the labor resource cost should be burdened, including consideration of time paid, not worked. The level of nominal "precision" is discretionaryl but should be "close" and directionally correct.


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