3 Simple Steps to Calculate Labor Cost

Aim of Tutorial : Calculation labor cost  for comparing it with labor's productivity. Labor cost will also needed to know the total cost of production.

1st Step : To Find total amount of wages or total labor cost from financial accounting

From financial accounting records, you can find total amount of wages or labor cost  in which workers' contribution to state insurance and provident fund should be included.

2nd Step : To divide total amount of wages into Direct Wages and Indirect Wages

According to the identity of employee, classify total wages into direct wages and indirect wages. Sometime a worker does both production work and other work, at that time, use time tickets to find the % of his time for direct production and other works. After this, you can divide total amount of wages into direct wages and indirect wages.

3rd Step : To Transfer direct wages in prime cost and indirect wages to overheads

Make a cost sheet and show direct wages as direct labor cost  in prime cost and indirect wages in overhead.

Related : Steps to Calculate Labor Turnover