Direct labor variable or fixed cost

Direct labor variable or fixed cost - Direct Labor or fixed...

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Direct Labor or fixed cost? Variable costs are costs that increase or decrease with production whereas, fixed costs are constant and must be paid no matter what level of activity is chosen. Therefore, I believe that direct labor cost is a variable cost and a fixed cost, whether it is acquired in advance of use or acquired when needed. The implication of the traditional treatment is that direct labor costs are variable costs because they are incurred in proportion to the units produced, and these variable costs are also relevant costs because direct labor was acquired on a piece-rate basis; that is, acquired only when it was needed for the job. One could also argue that direct labor cost could be a fixed cost because it is paid for in advance and its payment does not vary with the number of units produced. The pros of management treating direct labor as a variable cost is that as variable cost increase, the level of output increase and the con of a variable cost is that any amount purchased but not used cannot be stored and carried forward to the next period as
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This note was uploaded on 07/07/2011 for the course BUS 600 taught by Professor Lee during the Spring '11 term at Troy.

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Direct labor variable or fixed cost - Direct Labor or fixed...

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