Question

Distinguish between direct labor and indirect labor.

Short answer

While work performed on specific commodities or services is considered direct labor, employee work that cannot be linked to or billed to creating goods or services is considered indirect labor.

Step-by-step solution

Meaning of Direct labor

Employee work to transform raw resources into final commodities is direct labor. In other words, the things a company sells result from the employees’ labor. The products they assist in the making can be directly linked to this work.

Difference between direct labor and indirect labor

1. A direct laborer is a person who assembles a finished product from raw materials. At the same time, Indirect labor refers to the efforts of factory employees who don't work directly on converting direct materials into finished products and whose efforts aren't linked to specific units or batches.
2. A cost center may receive partial or full direct labor charges. At the same time, no cost center may get a full allocation or charge for indirect labor.
3. An efficient process results from direct labor. At the same time, a productive operation cannot be produced by indirect labor.
4. Direct labor expenditures are an important portion of the overall manufacturing costs. At the same time, the overall cost of production does not significantly include indirect labor expenditures.