Indirect labor costs, as per financial accounting and other cost accounting books book are defines as wages associated with the production of the good but not in the direct line of production, e.g. Machine-repair technicians. This is in distinct from direct labor costs as defined by account book. Understanding labor costs is an important part of creating a budget and business cost analysis and those learning accounting for dummies and books of accounts. Many repair shops bill customers based on an average time spent to repair a specific problem. In major parts of the country there is a lot of competition with demand and supply in an approximate balance.
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To be able to a labor analysis for the auto mechanic shop, I will need to:
- Identify and evaluate a method to use to come up with an estimate direct labor cost.
- Find any proposed direct labor cost that does not appear sensible.
- Pinpoint any proposed direct labor cost that should be classified as an indirect cost.
- Identify any suggested direct labor cost that values special attention because of high value or other reasons.
- Assure that primary concerns about direct labor cost estimations are well acknowledged.
To gather data for my analysis I would use interviews, direct questionnaires, observation and study books of accounts. This is to have people open up to the exercise and also to have data to compare the results after your analysis.We would first of all list all major repairs that are done at the shop e.g. wheel alignment, windscreen fixing, etc. The next step would involve observation especially on time taken to do those repairs by specific mechanics. This would give us a gauge of our mechanics against market standards. I would also conduct interviews with the mechanics and the personnel working in accounting firms to get their feeling on the current situation. Finally I would compare my findings with the best accounting books and business books.
An analysis on this would be used and based on this a labor rate would be set. To evaluate the set rate the below questions would be asked. If an answer is yes to one or more of these five questions, the labor rate should be considered as reasonable:
- Is the proposed labor rate and related compensation reasonable based on comparisons with the compensation practices of other firms of the same size?
- Is the proposed labor rate and related compensation reasonable based on comparisons with the compensation practices of other firms in the same industry?
- Is the proposed labor rate and related compensation reasonable based on comparisons with the compensation practices of other firms in the same geographic area?
- Is the proposed labor rate and related compensation reasonable based on comparisons with the compensation practices of firms engaged in predominantly nonGovernment work?
- Is the proposed labor cost reasonable based on comparisons with the cost of comparable services from other sources?