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In what scenario, we would take labour as a variable cost and not a fixed cost. In few questions they have taken labour as variable and in some it’s assumed as fixed. I’m unable to differentiate.
It depends on the information given in the question.
Labour is variable if it depends on the level of production, so (for example) if labour is paid by the hour then it will be variable because producing more takes more hours and therefore costs more. If, on the other hand, it is the salary of (for example) a supervisor, then it will be a fixed cost because the supervisor will be paid the same regardless of the level of production.
If you quote from one of the questions that is confusing you, then I can explain the specific problem.
A B C
Selling price of service 120 170 176
Direct labour 20 30 20
Variable overhead 40 56 80
Fixed overhead 20 32 40
80 118 140
Profit 40 52 36All three services use the same direct labour, but in different quantities.
In a period when the labour used on these services is in short supply, the most and least profitable use of
the labour is: C = Rank 1 .. A = Rank 2 … B = Rank 3this question is in the chapter round up throughput accounting of bpp text book. they have taken out DL and VOH from the selling price to calculate the throughput. Im understanding how the ranking came up but why did they take labour as variable? because it is 20$ as per service? If so, I get it.
Kaplan text book question 3: Justin Thyme manufactures four products, A, B, C and D. Details of sales
prices, costs and resource requirements for each of the products are as
follows.
Machine time is a bottleneck resource and the maximum capacity is 400
machine hours each week. Operating costs, including direct labour costs,
are $5,440 each week. Direct labour costs are $12 per hour, and direct
labour workers are paid for a 38-hour week, with no overtime.The question is not complete, I just want to know from this context. Is the labour variable or fixed?
In both cases it refers to direct labour and direct costs are variable.
(Indirect labour refers to costs such as supervisors wages, and indirect labour is an indirect expense i.e. an overhead.)
Have you watched my free lectures on throughout accounting?
The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well. If you are watching the lectures then you do not really need the study texts. The essential book (however you choose to study) is the Revision Kit, because that is full of past exam (and other exam-standard) questions for practice. Practice at these questions is vital to passing the exam).
Is backflush accounting likely to come up on the exam;’ as there is information on the Through Put Articles of this nature?
‘Back-flush accounting is a costing short-cut. It relies on businesses having immaterial amounts of work-in-progress and it is therefore particularly suitable for businesses operating just-in-time inventory management.’
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