Indirect Labour: An In-Depth Overview
Definition
Indirect labour refers to employees who are not directly involved in the manufacturing or creation of a product. These individuals support the production process but do not directly touch with the product itself. Examples of indirect labour include maintenance personnel, cleaning staff, and senior supervisors, such as foremen.
Detailed Explanation
The costs associated with indirect labour are typically included in the overheads of the business. Unlike direct labour, which can be easily traced to a specific product, indirect labour costs have to be allocated across several products or business activities. These roles are crucial for the smooth functioning of the operations but are not part of the direct creation process.
Examples
- Maintenance Personnel: These workers ensure that machinery and equipment are in working condition, which is necessary for production to occur smoothly.
- Cleaning Staff: They keep the manufacturing area clean and safe, contributing to an efficient and compliant work environment.
- Senior Supervisors or Foremen: These individuals oversee the production process, manage teams of direct labour, and ensure that operations run efficiently.
Frequently Asked Questions (FAQs)
Q1: How is indirect labour different from direct labour?
A1: Direct labour involves employees who are directly engaged in the production of goods, such as assembly line workers. Indirect labour refers to those who support the production process but are not directly involved in creating the product.
Q2: How are indirect labour costs classified in financial statements?
A2: Indirect labour costs are classified under manufacturing overheads and are allocated to products based on a predetermined rate or activity-based costing method.
Q3: Can indirect labour be a significant portion of manufacturing costs?
A3: Yes, depending on the nature of the business and the complexity of the operational processes, indirect labour can form a substantial portion of the total manufacturing costs.
Q4: How can businesses control indirect labour costs?
A4: Businesses can manage these costs through efficient scheduling, regular maintenance, and process improvements that reduce the need for excessive supervision or cleanup.
Q5: Are administrative staff classed as indirect labour?
A5: Administrative staff are generally considered part of selling, general, and administrative (SG&A) expenses and not manufacturing overheads, as their roles do not directly support the manufacturing process.
Related Terms
- Direct Labour: Workers directly involved in manufacturing the product.
- Manufacturing Overhead: All manufacturing costs except direct labour and direct materials.
- Cost Unit: A unit of product or service for which costs are measured and assigned.
- Overhead Allocation: The process of distributing overhead costs to cost units.
Online References
Suggested Books for Further Studies
- Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan
- Managerial Accounting by Ray H. Garrison, Eric W. Noreen, and Peter C. Brewer
- Principles of Cost Accounting by Edward J. Vanderbeck and Maria R. Mitchell
Accounting Basics: “Indirect Labour” Fundamentals Quiz
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