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I got so confused about the indirect labour costs. I know that the idle time and premium overtime are categorize as indirect labour costs but what about the overtime that meets to customer specific request and overtime? Are they indirect labour costs or direct labour costs? Thank you.
I always thought that OT was IL unless it was worked at Cust req, in which case it was then DL?
@kirit So basically OT is an indirect cost and OT which works to meet customer request is a direct cost ??
OT PREMIUM is indirect cost
OT BASIC RATE is direct cost
If the customer specifically requests that OT is worked, perhaps to complete the order on time, then the entire OT- BOTH BASIC AND PREMIUM is a direct cost
Correct. The rationale is that it is somewhat arbitrary which products are produced during normal hours and which during overtime, so it would be arbitrary to generally burden products made in overtime hours with overtime costs (they could just as easily have been made earlier).
However, if a customer knows that their product needs special overtime, and they willingly incur overtime costs the cost of their order should bear that.