The direct materials and direct labor
variances would be calculated as follows:
Once the LER is in place for direct labor
and administrative labor, the team can be held accountable to a measurable outcome to base pay adjustments and future hiring decisions.
Our task now (as a legion of cost accountants) is to account for the physical flow of airplanes, determine equivalent units in terms of direct materials, direct labor
, and manufacturing overhead, compute costs per equivalent unit, and complete a process costing report for the assembly department using the weighted-average method.
A 1989 Price Waterhouse survey found that roughly 80% of their American manufacturing clients continued to use TCS with direct labor
hours as the primary allocation method of overhead costs, despite fundamental changes in their core business processes.
Harvey goes on that we have surge capacity even working the 19 million direct labor
hours this year and 25 million direct labor
hours next year, within the work being performed currently.
The overhead rate is the percentage of total office overhead to total office direct labor
. Overhead also includes that portion of principal's time that is not chargeable to projects.
The direct labor
costs are obvious and are driven by how much will be saved as a result of eliminating salaries.
Overhead is still allocated based on direct labor
(often requiring overhead rates of 600% or more because direct labor
is so low); standard costing systems are still used to establish prices; complex systems are still used to value inventory; and financial accounting is still used to measure and monitor operations.
* A labor-cost pool based on direct labor
It allows for the pricing of change orders through either (1) contractual unit prices, if any, (2) payment of the "actual and reasonable" cost of seven scheduled direct cost items (e.g., materials, direct labor
, equipment related costs, sales and personal property taxes), plus a 10% markup for "overhead" items and a 10% profit factor, or (3) an agreed, negotiated fixed sum.
A 4-page brochure on in-machine CNC deburring of flat surfaces explains how to reduce direct labor
while improving quality using Nylox abrasive nylon filament disc brushes.
For example, if you are abstracting data manually from a medical record, costs may include the direct labor
of record abstraction as well as the simple costs of tools to document the data, such as a spreadsheet, database, or pencil and paper.