Direct Labor Standards
Direct Labor Standards:
Learning Objective of the articles:
- Define and explain “direct labor standards” .
- How direct labor rate and direct labor efficiency standards are set?
Direct labor price and quantity standards are usually expressed in terms of a labor rate and labor hours.
- Direct labor rate standards
- Direct labor efficiency | usage | quantity standards
- Example of standard cost card
Direct Labor Rate Standards:
The standard labor rate per hour for direct labor includes not only wages earned but also fringe benefit and other labor costs.
Example of Standard rate per direct labor hour:
Basic wages rate per hour Employment taxes at 10% of the basic rate Fringe benefits at 30% of the basic rate Standard rate per direct labor hour |
$10 |
Many companies prepare a single standard rate for all employees in a department. This standard rate reflects the expected “mix” of workers, even though the actual wage rates may very somewhat from individual to individual due to different skills of seniority. A single standard rate simplifies the use of standard costs and also permits the managers to monitor the use of employees within department.
Direct Labor efficiency | Usage | Quantity Standards:
The standard direct labor time required to complete a unit of product (called the standard hours per unit) is perhaps the most difficult standard to determine. One approach is to divide each operation performed on the product into elemental body movements (such as reaching, pushing, and turning over). Standard times for such movements are available in reference works. These standard times can be applied to the movements and then added together to determine the total standard time allowed per operation. Another approach is for an industrial engineer to do a time and motion study, actually clocking the time required for certain tasks. The standard time should include allowances for breaks, personal needs of employees, cleanup, and machine downtime.
Example of standard labor hours per unit:
Basic labor time per unit, in hours Allowance for breaks and personal need allowance for cleanup and machine downtime Allowance for rejectionStandard labor hours per unit of product |
1.9 |
Standard labor hours per unit and standard direct labor rate per hours computed above shall be used in calculating labor rate variance and labor efficiency variance. Once the rate and time standards have been set, the standard labor cost per unit of product can be computed as follows:
2.5 hours per unit × $14 per hour = $35 per unit
This $35 per unit standards labor cost appears along with direct materials on the standard cost card of the product as shown by the following example.
Example of Standard Cost Card:
(1) | (2) | (3) | |
Inputs |
Standard Quantity or Hours | Standard Price or Rate |
Standard Cost (1) × (2) |
Direct materials | 3.0 pounds | $ 4.00 | $ 12.00 |
Direct labor | 2.5 hours | $ 14.00 | $ 35.00 |
Variable manufacturing overhead | 2.5 hours | $ 3.00 | $ 7.50 |
———- | |||
Total standard cost per unit | $54.50 | ||
===== |
You may also be interested in other articles from “standard costing and variance analysis” chapter
- Standard Costs and Management By Exception
- Setting Standard Costs – Ideal Versus Practical Standards
- Direct Materials Price and Quantity Standards
- Direct Materials Price Variance
- Direct Materials Quantity Variance
- Direct Labor Rate and Efficiency Standards
- Direct Labor Rate/Price Variance
- Direct Labor Efficiency | Usage | Quantity Variance
- Manufacturing Overhead Standards
- Overall or net factory overhead variance.
- Controllable variance
- Volume variance
- Spending variance
- Idle capacity variance
- Efficiency variance
- Spending variance
- Variable efficiency variance
- Fixed efficiency variance
- Idle capacity variance
- Mix and Yield Variance – Definition and Explanation
- Materials Mix and Yield Variance
- Labor Yield Variance
- Factory Overhead Yield variance
- Variance Analysis and Management By Exception
- Managerial importance and usefulness of variance analysis
- Advantages and Disadvantages of Standard Costing System
- Standard Costing Discussion Questions and Answers
- Standard Costing and Variance Analysis Formulas
- Standard Costing and Variance Analysis Problems and Solution
- Standard Costing and Variance Analysis Case Study
Other Related Accounting Articles:
- Direct Labor Rate | Price Variance rate
- Direct Labor Efficiency Variance
- Overall or Net Factory Overhead Variance
- Standard Costing and Variance Analysis Problems & Solution
- Factory Overhead Idle Capacity Variance
- Factory Overhead Spending Variance
- Direct Materials Quantity Variance
- Direct Materials Price and Quantity Standards
- Direct Materials Price Variance
- Standard Costing and Variance Analysis
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