Measuring Direct Labor Cost in Job Order Costing System

Measuring Direct Labor Cost in Job Order Costing System:

Learning objective of this article:

  1. What is a labor time ticket? Give an example of labor time ticket.

  2. How direct labor cost is measured and recorded on job cost sheet in a job order costing system.

Labor Time Ticket:

Direct labor cost is handled in much the same way as direct materials cost. Direct labor consists of labor charges that are easily traced to a particular job. Labor charges that cannot be easily traced directly to any job are treated as part of manufacturing overhead. The later category of labor cost is known as indirect labor and includes tasks such as maintenance, supervision, and cleanup. Workers use time tickets to record the time they spend on each job and task. A completed labor time ticket is an hour by hour summary of the employees activities throughout on a specific job, the employee enters the job number on the time ticket and notes the amount of time spent on that job. When not assigned to a particular job, the employee records the nature of the indirect labor task (such as cleanup and maintenance) and the amount of time spent on the task. The daily time tickets are also used as the basis for labor cost entries into the accounting records. Following is an example of employees time ticket.

Sample of Employee Time Ticket:

Time Ticket No. 843
Employee Mary Holden
Date March 3            
Station 4                    
Started Ended Time Completed Rate Amount Job Number
7:00 12:00 5.0 $9 $45 2B47
12:30 2:30 2.0 9 18 2B50
2:30 3:30 1.0 9 9 Maintenance

Job Cost Sheet:

At the end of the day, the time tickets are gathered and accounting department enters the direct labor hours and costs on individual job cost sheets. Following is an example of a job cost sheet.

Example of Job Cost Sheet:


Job Number 2B47
Department Milling
For Stock                                      
Date Initiated March 2
Date Completed
Units Completed                              
Direct Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate Amount
14873 $660 843 5 $45
Cost Summary Units Shipped
Direct Materials $ Date Number Balance
Direct Labor $
Manufacturing Overhead $
Total Cost $

Unit Product Cost


The system we have just described is a manual method for recording and posting labor costs. Many companies now rely on computerized system and no longer record labor time by hand on sheet of paper. One computerized approach uses bar codes to enter the basic data into the computer. Each employee and each job has a unique bar code. When an employee begins work on a job, he or she scans three bar codes using a hand-held device much like the bar code readers at grocery store check-out stands. The first bar code indicates that a job is being started; the second is the unique bar code on his or her identity badge; and the third is the unique bar code of the job itself. This information is fed automatically via an electronic network to a computer that notes the time and then records all of the data. When the employee completes the task, he or she scans a bar code attached to the job. This information is relayed to the computer that again notes the time, and a time ticket is automatically prepared. Since all of the source data is already in computer files, the labor costs can be automatically posted to job cost sheets (or their electronic equivalents). Computers, coupled with technology such as bar codes, can eliminate much of the drudgery involved in routine bookkeeping activities while at the same time increasing timeliness and accuracy.

In Business:

Relation of Direct Labor to Product Cost:
How much direct labor is in the product you buy? Sometime not very much. During a visit to the Massachusetts Institute of Technology, Chinese Prime Zhu Rongji claimed that, of the $120 retail cost of a pair of athletic shoes made in china, only $2 goes to the Chinese workers who assemble a $90 pair on Nike sneakers is only $1.20

Source: Robert A. Senser, letter to the editor, Business Week, May 24, 1999, pp. 11-12.

A More Productive Use of Time:
Is it always worth the trouble to fill out labor time ticket ? in a word, no. United Electric Control, Inc., located in Waterton, Massachusetts, makes temperature and pressure sensors and controls. The manufacturing vice president decided he wanted employees to spend their time focusing on making products rather than on filling out labor time tickets. The company converted everyone into salaried workers and stopped producing labor reports.

Source: Richard L. Jenson, James W. Brackner, and Clifford Skousen, Management Accounting in Support of Manufacturing Excellence, 1996, The IMA Foundation for Applied Research, Inc., Montvale New Jersey, p. 12

High Tech in the Fields:
Advanced technology for recording data is even found in strawberry fields where the pay of workers is traditionally based on the amount of berries they pick. The Bob Jones Ranch in Oxnard, California, is using dime-sized metal buttons to record how boxes of fruit each worker picks. The buttons, which are stuffed with microelectronics, are carried by the field workers. The buttons can be read in the field with a wand like probe that immediately downloads data to a laptop computer. The information picked up by the probe includes the name of the worker; the type and quality of the crop; and the time, date, and location of the field being picked. Not only does the system supply the data needed to pay over 700 field workers but it also provides farm managers with information about which fields are most productive. Previously, two people were required every night to process the time tickets for the field workers.

Source: Marke Boslet, “Metal Buttons Carried by Crop Pickers Serve as Mini Databases for Farmers,” The Wall Street Journal, May 31, 1994, p. A11a

You may also be interested in other useful articles from “job order costing system” chapter:

  1. Measuring Direct Materials Cost in Job Order Costing System
  2. Measuring Direct Labor Cost in Job Order Costing System
  3. Application of Manufacturing Overhead
  4. Job Order Costing System – The Flow of Costs
  5. Multiple Predetermined Overhead Rates
  6. Under-applied overhead and over-applied overhead calculation
  7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
  8. Predetermined Overhead Rate and Capacity
  9. Recording Non-manufacturing Costs
  10. Recording Cost of Goods Manufactured and Sold
  11. Job Order Costing in Services Companies
  12. Use of Information Technology in Job Order Costing
  13. Advantages and Disadvantages of Job Order Costing System
  14. Job Order Costing Discussion Questions and Answers
  15. Job Order Costing Exercises
  16. Case Studies

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