ABSTRACT
Direct labor cost is payroll cost that can be specifically and consistently assigned to or associated with the manufacture of a product. Historically, it was a category used for wages of production line workers. It is about time to rethink the value of categorizing labor as direct and indirect. This enabled calculation and reporting of direct labor variances and labor efficiency. The calculation of direct labor cost per unit is fraught with the same absorption and allocation issues as overhead. The team needs to focus on the skills that are needed within the team to establish throughput, determine where the gaps are, and then determine which team members are best suited to fill the gaps. Cross-trained employees are crucial for more than just throughput and bottlenecks. Cross-trained employees develop an understanding of the process—they know how what an operator does in one step can impact another operator at the next step.
