Question

Identify why labor costs are often more difficult to control than material costs. Give a specific example. 1 Paragraph

Answer 1

Labor costs are direct costs associated directly with operational aspect of manufacturing a product. It is in the hands of the company to address the labor issues. Material costs are also direct costs which equates to the raw materials required for manufacturing the final product. Both are inputs to final product where labor costs are adjustable and material costs are difficult to control. Labor costs can be controlled by the appropriate designing of efficient assembly methods. The employees may have to work more or less which depends the quality control aspect of the manufacturer, whereas, material cost is generally not in the hand of manufacturer. The costs are fixed by supplier and is generally linear even if the manufacturer decides to change the suppliers. However, labor costs can be adjusted to the costing needs of manufacturer. Hence, during budget cuts, the first thing company does is cutting inefficient labor costs. For eg; for producing single set of furniture, you need the fixed raw materials. However, the number of labors will depend on the quality of output. If the order is for simple design, the manufacturer will opt for less labor incurring low labor costs and if the order is special, quality costs will increase leading to higher labor costs.

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