Explain how to derive the labor rate and how that relates to

Explain how to derive the labor rate and how that relates to the total company overhead.

250 WORDS

Solution

Direct labor can be defined as those individuals who are involved in the production of goods and service for example workers on an assembly line. While deciding the labor rate, the actual rate is decided by the manager. It can be said as the total amount which is agreed to be paid to direct labor employee for direct labor hours worked. In order to find out the labor rate, the below-mentioned steps can be taken:-

1. Write down the full amount of the direct labor which is the total amount paid just for labor

2. Determine the total number of hours worked by each labor and multiply the hours worked each day by the number of days worked

3. Multiply the amount of each worker\'s direct labor hours by the total amount of workers.

4. Divide the full amount paid for direct labor by the full amount of direct labor hours

Labor rate and company overhead:- Direct labor can be seen as the work of the employee of the firm who is directly involved in the production of goods and services and physically associated with the finished products. On the other hand, indirect labor is those who are having an indirect association with the production of the products. Indirect labor is the element of the factory overhead. Manufacturing overhead is all manufacturing costs apart from those which are directly and physically related to the finished product. In order to determine the overhead rate, a relationship between factory overhead and direct labor may become important. This is mainly treated as an allocating tool for implementing factory overhead to a finished product