Indirect Labor

What is Indirect Labor?

Indirect labor is referred to those set of employees who are not directly involved in the production process of finished goods or services. However, they are needed to support the production and manufacturing ecosystem, examples of which include accountants, human resources, sales, and marketing teams, etc. The cost of indirect labor is a part of the overhead costOverhead CostOverhead cost are those cost that is not related directly on the production activity and are therefore considered as indirect costs that have to be paid even if there is no production. Examples include rent payable, utilities payable, insurance payable, salaries payable to office staff, office supplies, etc.read more, which also contains indirect material cost and indirect expensesIndirect ExpensesIndirect expenses are the general costs incurred for running business operations and management in any enterprise. In simple terms, when you want to buy grocery from a supermarket, the transportation cost to get you to the supermarket and back is the indirect expenses.read more.

Examples of Indirect Labor

Indirect Labor

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Source: Indirect Labor (wallstreetmojo.com)

How to Calculate Indirect Labor Costs?

Let us learn how to calculate indirect labor costs with the help of the below examples.

You can download this Indirect Labor Excel Template here – Indirect Labor Excel Template
Indirect Labor Cost for Product A = Total Indirect Labor cost / Total No. of Units Produced * No. of Units for Product A
  • = 15000 / 7500 * 2000 = 40000

Similarly, for product B and product C is $ 50000 and $ 60000, respectively.

Example of Indirect Labor

What is the Difference Between Direct Labor and Indirect Labor (IL) ?

Conclusion

Indirect Labor pay vital role in overall business operation as they are involved in every stage of business like the purchase of raw material, handling of raw material & finished goods, direct laborDirect LaborDirect labor costs refer to the total cost incurred by the company for paying the wages and other benefits to its employees against the task performed by them, which are straight away related to the manufacturing of the products or provision of the services.read more and their supervision, arranging all the infrastructure required for production, assigning all the cost to their cost center, marketing & advertisement of the product then selling of finished goods. Still, they are directly not associated with the conversion of raw material into finished goods.

This article has been a guide to what is indirect labor and its definition. Here we discuss the examples of indirect labor cost along with calculation and its differences with direct labor. You may also take a look at the following articles:-

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