Calculating Labor Cost

Labor employed in any organization may be of following two classes:

1. Direct Labor
2. Indirect Labor

Direct Labor

The workers, who actually work or process different materials manually or with the aid of machines is known as direct labor. This is also called 'productive labor'. The nature of their duties is such that their wages can be directly charged to the job, which they are manufacturing.

Workers engaged for operating on various production machines in machine shop, welding shop, electric winding, assembly shop etc. are known as direct labor.

Indirect Labor

Any other labor, who helps the productive labor in performing their duties is known as indirect labor. The nature of their duties is such that their wages cannot be charged directly to a particular job but are charged on the total number of products produced in the plant during a particular period.

Foreman, supervisors, inspectors, gate-keepers, store keepers etc. are classified as indirect labor.

Now again consider the above example of milling machine shop, the worker who is producing gears continuously on the milling machine is known as direct labor, while the foreman, supervising in the milling machine shop, the inspector checking the accuracy of gears and helper, who is bringing blanks and taking away gears from the worker are examples of indirect labor.


Calculating Direct Labor Costs

For the purpose of calculation of labor cost, estimator must have knowledge of

a. All operations, which are carried out for the manufacture of the product.
b. Tools
c. Machines, used for production.

Estimator should also take the advice of production department about the correct estimated time for each operation. He should also consider various allowances like:

1. Set up time

2. Operating time
a. Handling time
b. Machining time

3. The tear down time

4. Miscellaneous allowance
a. Personal allowance
b. Fatigue allowance
c. Tool changing and grinding allowance
d. Measurement checking allowance
e. Other allowances for cleaning, oiling, getting stocks etc.

Next Chapters

Estimating Procedure
Difference between Estimating & Costing
Depreciation & Obsolescence
Material Cost Calculation
Calculating Labor Cost
Direct and Indirect Expenses
Component Cost
Machine Shop Estimating
Forging and Forging Types
Starting an Organization
Welding Cost Estimation
Jigs and Fixtures
Qualities of an Entrepreneur
Starting Small Scale Industries
Budget and Budgetary Control
Supply & Law of Supply
Exchange and Barter Exchange
Classification of Market
Money and Types of Money
Trade Cycle
Break Even Analysis
Financial Management

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