Tuesday, April 12, 2016

Direct and Indirect Labour Cost

Labour is classified into (a) direct labour and (b) indirect labour.
(a) Direct labour cost is cost of labour expended in altering the construction, composition or condition of the product. Direct labour cost is easily identified and allocated to cost units.
(b) Indirect labour cost is the amount of wages paid to workmen who are not directly involved in altering the composition of the product. Direct labour cost forms part of prime cost, whereas indirect labour cost forms part of overheads.
Labour costs represent the various items of expenditure incurred on workers by the employer and would include the following:
(a) Monetary Benefits e.g.: 
(i) Basic Wages; 
(ii) Dearness Allowance; 
(iii) Employer’s Contribution to Provident Fund: 
(iv) Employer’s Contribution to Employees’ State Insurance (ESI) Scheme; 
(v) Production Bonus; 

(vi) Profit Bonus; 
(vii) Old age Pension; 
(viii) Retirement Gratuity.

(b) Fringe Benefits, e.g.: 
(i) subsidized Food; 
(ii) Subsidized Housing; 
(iii) Subsidized Education to the children of the workers; 
(iv) Medical facilities; 
(v) Holidays Pay; 
(vi) Recreational facilities.