Direct labor

Definition

Direct labor refers to the wages and salaries of employees who are directly involved in the production of goods or services. This cost is directly traceable to specific products or jobs within a manufacturing environment.

5 Must Know Facts For Your Next Test

1. Direct labor costs can be precisely allocated to individual units of production since they are directly tied to the manufacturing process.
2. Direct labor is a key component of product costs, alongside direct materials and manufacturing overhead.
3. In job order costing, direct labor is recorded on job cost sheets to determine the total cost of each job.
4. Accurate tracking of direct labor hours is essential for calculating predetermined overhead rates and ensuring accurate job costing.
5. Variable and absorption costing methods treat direct labor as part of variable costs that fluctuate with production levels.

Review Questions

• How does direct labor differ from indirect labor in terms of cost allocation?
• Why is it crucial to accurately track direct labor hours in a manufacturing setting?
• What role does direct labor play in calculating predetermined overhead rates?

Related terms

Indirect Labor: Indirect labor refers to the wages and salaries of employees who support the production process but whose work cannot be directly traced to specific products.

Manufacturing Overhead: Manufacturing overhead includes all indirect costs associated with production, such as indirect materials, indirect labor, and other factory expenses.

Job Order Costing: Job order costing is an accounting method used to assign costs to specific jobs or batches, tracking expenses for each unique project separately.