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Evo-ERP and DBA Classic >> Manufacturing >> Recalculating the cost of Labor
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Message started by David Waldmann on 10/03/13 at 10:53:00

Title: Recalculating the cost of Labor
Post by David Waldmann on 10/03/13 at 10:53:00

It seems that once you've been operating for a while you should be able to recalculate your cost of Labor and Overhead by using the numbers on your financial statement. For instance, our Absorbed Labor Variance has been consistently off in once direction for quite a while. Shouldn't I be able to use the Absorbed Labor and Absorbed Labor Variance amounts and adjust my Labor cost by that percentage?

For instance, say my Labor Cost is stated as $10/hr, and on my P&L the Absorbed Labor is -$100 and Absorbed Labor Variance is -$10. That would suggest to me that my Labor Cost should be 10% higher, or $11.

Is it that simple or am I missing something?

Thanks,
-d

Title: Re: Recalculating the cost of Labor
Post by David Waldmann on 10/03/13 at 11:06:47

Or, if I take the total of Absorbed Labor and the Absorbed Labor Variance and divide it by the number of hours in the period, wouldn't that also give me the proper (historical) hourly Labor cost? I think that's the same result as my first method, just a different way of doing the math, right?

Title: Re: Recalculating the cost of Labor
Post by Lynn_Pantic on 10/03/13 at 11:15:50

Or take the actual direct labor divided by the number of hours. The absorbed Labor Variance is not a system generated value. It is something you determine by comparing Absorbed to Actual labor.

Title: Re: Recalculating the cost of Labor
Post by David Waldmann on 10/03/13 at 12:04:36

I was trying to keep the concept simple, but we actually use fully burdened labor cost so it gets a bit more complicated as you need to add up all the other costs. Plus, all labor is classified as Direct and then we take out Indirect Labor and Admin Labor. So there are a lot of non-system generated entries and I'm trying to make sure they're right.

I think I've got it now. I'm going to make the adjustments and then check again at the end of the quarter. The nice thing is that as long as your pricing is good none of this really matters except from a reporting perspective. Took my accountant a while to get comfortable with it though...

thanks,
-d