Labor cost per unit - direct labor only or fully burdened cost?

I'm having a 'discussion' with our VP Operations as to what should be considered as part of labor cost per unit. I take the position that it should be a total burdened labor cost per hour (including employer costs, vacation, etc.). He takes the position it is direct labor only, and that the balance of the costs are indirect costs of goods sold. Thoughts?

Answers

Wayne Spivak President & CFO • February 18, 2012

According to "Cost Accounting, A Managerial Emphasis", 8th Ed by Horngren, Foster & Datar, Prentice Hall 1994, Page 41-42:

"...Examples include wages and fringe benefits paid to machine operators and assembly-line workers."

You win!

Keith Perry Director of Global Accounting • February 22, 2012

Wayne; great quote. ;-)
Concurring that this is how we do it as well. The logic argument is "that which is variable with the individual employee is a labor direct cost."

Allan Kaplan CFO • February 21, 2012

Can I get you to scan that page and send it to me? akaplan98 @ gmail

Thanks.

Barrett Peterson Senior Manager, Actg Stnds & Analysis • March 9, 2012

I consider the resource, not the cost components of the resource, to be direct or indirect. The person's time is the resource. If the person's efforts are "direct", the cost of that person is also direct. An estimate of the labor resource cost should be burdened, including consideration of time paid, not worked. The level of nominal "precision" is discretionaryl but should be "close" and directionally correct.

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Labor cost per unit - direct labor only or fully burdened cost?

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