ACCA MA Syllabus C. Cost Accounting Techniques - Direct and indirect costs of labour - Notes ^{11 / 22}

Direct labour costs include the basic pay of direct workers.

Direct workers are those employees who are directly involved in making the products.

Therefore, they are part of the prime cost of a product.

Indirect Labour Costs

Indirect labour costs include the basic pay of indirect workers, i.e. those employees who are not directly involved in making the product

e.g. factory supervisor, maintenance staff. 

These costs are part of the overhead cost.

Indirect labour costs also include:

1. bonus payments

2. idle time – it occurs when employees cannot get on with their work, through no fault of their own, e.g. machines break down or there is shortage of work

3. sick pay

4. time spent by direct workers doing ‘indirect jobs’ e.g. cleaning the offices or repairing machines.

When employees work overtime, they will receive a basic pay + an overtime premium.

Is the overtime premium a direct or indirect cost?

Shift allowances or shift premiums are similar to overtime premiums and are treated as an indirect labour cost.