Direct Labor Standards

Direct Labor Standards:

Learning Objective of the articles:

  1. Define and explain “direct labor standards” .
  2. 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.

  1. Direct labor rate standards
  2. Direct labor efficiency | usage | quantity standards
  3. Example of standard cost card

Direct Labor Rate Standards:

The standard 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

$  1
$  3

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 rejection
Standard labor hours per unit of product


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)


Standard Quantity or Hours Standard Price or
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

  1. Standard Costs and Management By Exception
  2. Setting Standard Costs – Ideal Versus Practical Standards
  3. Direct Materials Price and Quantity Standards
  4. Direct Materials Price Variance
  5. Direct Materials Quantity Variance
  6. Direct Labor Rate and Efficiency Standards
  7. Direct Labor Rate/Price Variance
  8. Direct Labor Efficiency | Usage | Quantity Variance
  9. Manufacturing Overhead Standards
  10. Overall or net factory overhead variance.
  11. Controllable variance
  12. Volume variance
  13. Spending variance
  14. Idle capacity variance
  15. Efficiency variance
  16. Spending variance
  17. Variable efficiency variance
  18. Fixed efficiency variance
  19. Idle capacity variance
  20. Mix and Yield Variance – Definition and Explanation
  21. Materials Mix and Yield Variance
  22. Labor Yield Variance
  23. Factory Overhead Yield variance
  24. Variance Analysis and Management By Exception
  25. Managerial importance and usefulness of variance analysis
  26. Advantages and Disadvantages of Standard Costing System
  27. Standard Costing Discussion Questions and Answers
  28. Standard Costing and Variance Analysis Formulas
  29. Standard Costing and Variance Analysis Problems and Solution
  30. Standard Costing and Variance Analysis Case Study

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