Question

Wisconsin and the University of Ghana are institutions that have groups or types of labour cost, using appropriate examples explain the cost associated with these labour and also explain the basis for which you classified the labour.

Answer 1

Meaning of Labour:
In simple meaning by ‘Labour’ we mean the work done by hard manual labour mostly work done by unskilled worker.

But in Economics, the term labour mean manual labour. It includes mental work also.In other-words we can say that Labour includes both physical and mental work undertaken for some monetary reward.

In this way, workers working in factories, services of doctors, advocates, officers and teachers are all included in labour. Any physical or mental work which is not undertaken for getting income, but simply to attain pleasure or happiness, is not labour.

For example:The work of a gardener in the garden is called labour because he gets income for it. But if the same work is done by him in his home garden, it will not be called labour, as he is not paid for that work. Further, if a mother brings up her child, a teacher teaches his son and a doctor treats his wife, these activities are not considered ‘Labour’ in economics. It is because of the fact that these are not done to earn income.

Definition of Labour:
1. According to Prof. Marshall – “Any exertion of mind or body undergone partly or wholly with a view to earning some good other than the pleasure derived directly from the work.”

Kinds of Labour:
Labour can be classified under the following heads:

1. Physical and Mental Labour.

2. Skilled and Unskilled Labour

3. Productive and Unproductive Labour.

1. Physical and Mental Labour:
Such work in which physical labour and physical strength is more important in comparison to mental labour is called physical labour. For example—The work of Rickshaw Puller, workers working in factory, porter who carries luggage on the platform.

But mental Labour is that in which brain is applied or mental fatigue is more in comparison to physical fatigue, For example—The work of an advocate, teacher, doctor, chartered accountant etc. For better performance of work mental and physical labour is essential.

2. Skilled and Unskilled Labour:
Skilled Labour is that in which special knowledge, learning, training and efficiency is required in performing the work. For example—The Labour of engineer, doctor, teacher and a scientist has been called as skilled Labour.

In this connection Prof. Robbins has written “Whether Labour is productive or unproductive does not depend upon its physical or mental nature of work. Rather it depends upon its relative scarcity in relation to its demand. All kinds of Labour which has a demand and receives a wage is regarded as productive

Labor cost is a critical factor in small-business operations. It's common for a business owner to hire employees to perform specific duties essential to the business – especially as it grows. There are various types of business labor, and each business labor expense can be assigned to one of them for cost-accounting purposes.

Most managers use accounting software to calculate the cost of goods produced or sold by the company and for its ease of use for a specific analysis of both direct and indirect labor costs. The four types of labor costs are variable labor, fixed labor, direct labor and indirect labor.

Variable Labor
As the name implies, variable labor costs vary based on the total amount of production output. The most common type of variable labor for small businesses is hourly employees. Consider the retail stores where you shop and the restaurants in which you dine. As demand for these businesses increases or decreases, the variable labor costs fluctuate commensurately.

While these employees are usually hired directly, some companies engage a temporary employment agency to find and hire new variable labor employees. Small businesses tend to use variable labor employees to minimize labor costs so that wages do not exceed estimated revenue. It's rare for business owners to guarantee working hours to these employees since they typically prefer to retain the right to cut back hours when sales and production output decreases.

Fixed Labor
Fixed labor costs remain the same despite fluctuations in a company's production output, according to the Small Business Administration (SBA). Owners and employees who earn a fixed salary regardless of total hours worked are obvious examples of fixed labor costs. One benefit of fixed labor costs is that business owners avoid paying overtime to managerial and supervisory staff. On the other hand, it's usually challenging to lower fixed labor costs without compromising the efficiency or efficacy of business operations.

Direct Labor
Direct expenses are costs that are connected to a specific cost object, such as raw materials used to develop a specific product or software implemented to quality control a consumer good or service. The majority of direct costs are labor and direct materials. According to the Financial Accounting Standards Board (FASB), which is the authority on nongovernmental generally accepted accounting principles (GAAP), variable and fixed labor costs can be categorized as direct or indirect.

Direct labor includes all employees responsible for producing a company’s products or services. Some examples of direct labor include quality control engineers, assembly line workers, production managers and delivery truck drivers. Unlike indirect labor, direct labor encompasses costs that are allocated to each consumer good or service produced by a company. Direct labor is typically managed through the use of specific time clock codes that can be aligned to individual production departments to calculate a portion of the cost of goods sold.

Indirect Labor
Costs that cannot be traced to an individual product or service or are otherwise labor expenses that are shared across the organization, such as administrative role expenses, are defined as indirect labor. Other examples include office supervisors, accountants, sales team members, maintenance staff and administrative assistants.

While indirect labor is a contributor to a company's indirect manufacturing overhead, it is a type of labor cost that is not allocated to the company's products or services because it affects the entire organization. Since employees provide ancillary services to the company's overall production process, this labor cost cannot be assigned to a specific product or service as with direct labor costs. It's important to note that business owners must pay for indirect labor through gross profits from product sales.