Indirect labor

Definition

Indirect labor refers to employee wages that cannot be directly traced to a specific product or job. These are usually costs associated with support staff such as maintenance, security, and administrative personnel.

5 Must Know Facts For Your Next Test

1. Indirect labor costs are considered part of manufacturing overhead.
2. Unlike direct labor, indirect labor does not vary directly with production levels.
3. In job order costing, indirect labor is allocated to jobs using a predetermined overhead rate.
4. Examples of indirect labor include salaries for supervisors and quality control inspectors.
5. Indirect labor costs must be included in the calculation of total cost under both variable and absorption costing methods.

Review Questions

• What distinguishes indirect labor from direct labor?
• How is indirect labor accounted for in job order costing?
• Why is it important to allocate indirect labor costs accurately in managerial accounting?

Related terms

Direct Labor: Wages that can be directly traced to the production of specific goods or services.

Manufacturing Overhead: All manufacturing costs that are not direct materials or direct labor, including indirect labor.

Predetermined Overhead Rate: A rate calculated before the period begins, used to allocate estimated manufacturing overhead costs to individual jobs or products.