Classification of Labour Costs
This can be classified into like:
a) Indirect or Direct cost
b) Variable or Fixed cost
c) Non controllable and controllable cost
a) Direct labour cost might be defined like the cost of remuneration for staff skills and efforts applied directly to a product or saleable service and that can be recognized separately in product costs.
Indirect labour cost may be defined like labour costs that are not charged directly to a product. The analysis of labour costs into indirect or direct cost depends on the circumstances under review
The wage paid to a worker who assembles components for a product is a direct cost while that paid to a worker who is moving components for a range of products from one part of the factory to another is an indirect cost.
b) Fixed cost in relation to labour is where through a worker is paid a fixed weekly wage irrespective of the output produced cost varies directly along with level of activity, as an example of whereas wages are paid at a rate per unit.
c) Variable Labour Cost varies directly along with level of activity, for example where wages are paid per unit.
d) Controllable labour cost is a cost that can be influenced via the actions of a person in whom authority for such control is vested. The control of labour costs will be influenced via the method of remuneration and the degree of management control that is exercised.
Such uncontrollable labour costs cannot be influenced with an officer in the organization, as like an example of, wage rise agitated via the trade union is an uncontrollable labour cost.