What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


How to Calculate Direct Labor Rates in Accounting

Original post by Charlotte Johnson of Demand Media

Employees who manage production contribute to indirect labor costs.

Direct labor rate refers to the amount of money a company pays for labor per hour. Employees who are directly involved with the production of a product are considered direct labor. Indirect labor involves jobs like repairing equipment or setting up equipment, which means that the worker is performing work that is not directly involved in creating a product. If you are given information concerning the amount of hours worked and the total direct labor costs, you can calculate the direct labor rate.

Contents

Step 1

Write down the total number of hours spent on the production of a specific item. For instance, a company may have recorded 100 hours being spent on the production of Item A.

Step 2

Write down the total direct labor costs. Continuing with the example, assume the company spends a total of $1,000 in direct labor costs for a specific production period of Item A.

Step 3

Divide the total direct labor costs by the number of hours spent on production to find the direct labor rate. In this example, you would divide 1,000 by 100 to get a direct labor rate of $10 per hour.


                   

Things Needed

  • Calculator

References

About the Author

Charlotte Johnson is a musician, teacher and freelance writer with a master's degree in education. Johnson has written numerous articles for various websites. She has covered a wide range of topics including health, education, the arts, animals and parenting.

Photo Credits

  • Jupiterimages/Comstock/Getty Images


Advertisement