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John Moffat.
John Moffat.-
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trainee1
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Dear Moffat,
As far as I understood, all directs cost must be variable.
Now suppose a company has some workers in its production department that they salary does NOT change with the level of production ( they receive a fixed amount of salary that is very usual in all companies). Now in this case how should we deal with the labor expense? On the one hand it is labor cost that the company is paying to produce its goods (which seems it must be a direct labor cost) and on the other hand it is a fixed amount so it is an indirect labor cost!
What is the correct one?
Regards
John Moffat
- Topics: 57
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Fixed labour costs are indirect overheads. If it is factory wages then it is an indirect overhead of production.
(You say that it is usual in most companies to pay fixed salaries to production workers – that may be true for some companies in the short term, but certainly not in the long term!).
In the exam, production workers will be paid by the hour and will be variable costs, other than (for example) supervisors, who will be paid fixed salaries and will be indirect production overheads.
Are you watching the free lectures? The lectures are a complete free course for Paper MA (was F2) and cover everything needed to be able to pass the exam well.
trainee1
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