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costs
In addition to direct labor costs, there are other costs associated with direct labor
workers. These are idle time, overtime premium and fringe benefits that are provided to
workers. These are not part of direct labor cost. The following paragraphs explain the
computation and accounting treatment of idle time, overtime premium and labor fringe
benefits:
Treatment of idle time:
Idle time means the amount of time the workers remain idle in a normal working day.
The idle time is usually caused by a sudden fault in machine or equipment, power
failure, lack of orders for the product, inefficient work scheduling, defective materials
and shortage of raw materials etc. The cost associated with idle time is treated as
indirect labor cost and should, therefore, be included in manufacturing overhead cost.
For example, the normal weekly working hours of a worker are 48 and he is paid @ $8
per hour. If he remains idle for 6 hours due to power failure, then the cost of 42 hours
would be treated as direct labor cost and the cost of 6 hours (idle time) would be treated
as indirect labor cost and included in manufacturing overhead cost .