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
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 |
$10
$ 1
$ 3
-----
$14
==== |
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.
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 |
1.9
0.1
0.3
0.2
-------
2.5
==== |
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.
| |
(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 |
| |
|
|
===== |
|
