The
Direct Labor can be define as that cost which we spend over employees, labor
and other supporting staff to complete a task of production and we measure that
in terms of labor hours to analyze their performance and efficiency like we say we spend $10 @ of Per labor hour to compete that
task.
If we want to define and explain it more easily so we can
define the direct labor cost as follows:
·
Direct Labor cost is a product
prime cost which we use along with the manufactured overhead.
·
Direct Labor cost is an
invariable cost of the direct materials and manufactured overhead.
·
Direct Labor cost is an
prime cost along with direct material.
·
Direct Labor cost is an
conversion cost along with the manufactured overhead.
The difference between the standard Labor cost and actual labor
cost is known as the direct labor cost variance. That is also known as total
direct labor cost variance. The managerial accountants have proper abstracted
formulas to define the total direct labor cost variances. Which is a explained
as bellow:
Direct Labor Variance: Static Budget - Actual Results
= (SQ x SP) - (AQ
x AP)
Static
Budget: Standard
Quantity x Standard Price
Actual
Results: Actual Quantity
x Actual Price
The Direct Labor variance has future effects on the product
price and quantity and we have two different variance there and that are known
as price variance and quantity variance and they can be explain as follows:
Direct Labor Rate Variance:
That
means the difference between the direct Labor standard and actual rate and we
can further explain it as follows.
Direct Labor Price Variance: Middle
Budget - Actual
Results
= (AQ x SP) - (AQ
x AP)
= AQ x (SP x AP)
Direct Labor efficiency Variance:
That
means the difference between the direct labor standard and actual efficiency and
we can further explain it as follows.
Direct Labor Efficiency Variance: Static Budget - Middle Budget = (AQ x SP) - (AQ x
SP)
= SP x (SQ x AQ)
There is still the favorable and unfavorable concept exits
in the direct labor variances and
according to it when the workers of a production company they use the less standard
labor hours to produce the material that is known as favorable variance. Because in the favorable
variance case they are too much productive and they use their full managed
efforts to achieve the targets.
When the worker shrink the production, making
the huge material waste and involving in the material or products theft
activities and they are incapable of
using the machinery or unskilled so they take too much time for production that
is called the unfavorable variance for the direct labor.
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