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Hello,
In the notes and other text books Direct labour costs are classified as variable but I wonder why. Nowadays employees get their salaries regardless of the amount of work done. In production, for example, in most cases production employees will get paid the same amount of salary whether they produced 10 or 100 units therefore every extra unit won’t incur extra labour cost. So, why do we still consider direct labour costs as variable?
Please note I am not talking about situations where employee overachieved the plan and will get extra bonus or something like that. Just talking about normal production condition and salary.
Thank you.
Very good point you have and this is precisely the stance taken by throughput costing which views labour as an entirely fixed cost (at least in the short term).
The traditional costing systems though – marginal and absorption continue to class labour as direct cost when its paid at an hourly rate and represents the time that an employee spends working directly on a product.
This assumption continues to be the case in the notes, text books and CIMA exams for now anyway!
Hope that helps.
Thanks
Cath
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