Direct and Indirect Labor

Direct labor

Direct labor can be described as the labor which is engaged directly in ill manufacture of a product or in a particular job or service and which can be convenient allocated to the job, process or production unit. It is the labor engaged in changing composition, form or condition of a product manufactured.

It represents the labor when directly operates the manufacturing machinery and equipments. It handles the raw materials, work-in-process and finished goods on the production line. It can also called productive labor, process labor, operating labor and prime cost labor.

                                      

The important features of direct labor are as follows:

1. It is conveniently identified and allocated to cost unit.

2. It varies directly with the volume of output.

3. It is engaged in the manufacture of goods or providing services.

4. It is engaged in altering the composition, form or condition of a product,

5. It is easily ascertained and controlled.

Some examples of direct labor are:

1. Labor engaged in converting raw materials into finished product.
2. Labor engaged on a construction job.
3. Compositors engaged in a printing press.
4. Drivers and conductors engaged in a bus transport undertaking.
5. Helper attending a machine operation.

Wages paid to direct labor are termed as direct labor cost, direct wages to manufacturing wages and form part of prime cost.

Indirect Labor

Indirect labor is that labor which cannot be easily and conveniently allocated to the job, process or production unit. It represents labor which is not directly engaged in the manufacture of a product or in a job or service but indirectly helps in production. In short, the labor which cannot be directly identified with a job, process or operation, is generally treated as indirect labor. Examples of indirect labor are as follows:

1. Labor employed as supervisors, repair workmen, inspectors.
2. Maintenance workers such as workshop cleaner, mechanics, etc.
3. Labor engaged in purchasing, stores, factory office, time-keeping, canteen, etc.

Wages and salaries paid to such staff are treated as indirect labor cost which is included in overheads.

The distinction between direct and indirect labor in cost accounting is based not only on the nature of job done or the manufacturing system but also upon the circumstances in which labor costs are incurred. It also depends upon the organization structure. Salary of a supervisor is direct if he supervises a particular job and it is indirect if he is engaged in supervision of different jobs.

The importance of distinction between direct and indirect labor costs is to provide a more accurate product cost and to exercise a strict control over labor cost. The direct labor cost is charged to jobs and forms part of the prime cost, whereas indirect labor cost becomes a part of overheads.