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Is the direct labour cost really a direct cost?

CMA Anupam (Cost Accountant) (62 Points)

21 March 2015

Dear Proffesional Friends,

According to the guidelines issued by the ICAI (Institute of Cost Accountants of India) all cost that cannot be attributed directly to a product like Power, water, diesel etc. are "indirect costs". On a similar note "Labour" which is producing say "five different products" in a day, then there cost/wages for the day also needs to be allocated as it cannot be attributed directly to any of the products. We cannot say "this much labour is used for this and this much for that and we have to allocate it to various products by taking some activity base.

So I think nomenclature of direct labour is wrong as like staff they are also indirect.

Guys,I want your view on this.

Thanks,

CMA Anupam Mathur

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2 Replies

Srividya Murali (Article Assisstant) (211 Points)
Replied 22 March 2015

but Mr. Anupam, it is possible to say that this much of labour hour has been allocated for this much of product. so i think the nomenclature seems to serve the purpose.

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CMA Anupam (Cost Accountant) (62 Points)
Replied 23 March 2015

Srividya, Thanks for your answer. but labour hours can be used as the activity base for allocating the monthly Labour cost. It is same as machine hours used to allocate the power cost.

And secondly what if you are not paying the hourly wages to the labour.

CMA Anupam Mathur.