Labour cost major element of cost difficult reduce labor cost

Labor cost is a second major element of cost. Under the present political conditions with a restive labor in organized industry, it is very difficult to reduce the labor cost. Therefore, proper control and accounting for labor cost is one of the most important problems of a business enterprise. But control of labor cost presents certain practical difficulties unlike the control of material costs. The human element in labor makes difficult the control of labor cost whereas materials, being inanimate in nature, could be subjected to a rigid control. Labor is the most perishable commodity and as such should be effectively utilized immediately. Labor, once lost, cannot be recouped and is bound to increase the cost of production. On the other hand, materials, being durable, can be used as and when required and can be stored without having immediate loss. Labor are two types:

• Direct labor
• And indirect labor

Direct labor is that labor which is directly engaged in the production of goods or services and which can be conveniently allocated to the job, process or commodity unit. For example labor making the bricks in a kiln is the direct labor because labor charges paid for making bricks. Indirect labor is that labor which is not directly engaged in the production of goods and services but which indirectly helps the direct labor engaged in production of goods.

It may be mention that it may not always be possible to classify individual workers as direct labor or indirect labor. The difference between direct and indirect labor must be observed because payment of direct labor is a direct expenditure and is a part of prime cost whereas indirect labor is an item of indirect expenditure and is shown as works, office, selling and distribution expenditure according to the nature of the time spent by the indirect worker.