Direct Cost Analysis

622 Words2 Pages
Direct Cost Analysis Direct Cost Analysis The proper measurement of direct labor costs is essential when manufacturing a product. The management and accounting departments of a company need to know the actual costs of manufacturing a good so that effective business decisions can be made. Measuring Costs Accurately There are a few reasons why the measurement of a direct cost can go wrong. The first major reason is not taking all applicable costs into account. This includes missing fuel for vehicles. If fuel costs are not included, it could make the product seem cheaper than it actually is. Another reason why costs may be measured in accurately is not spreading the cost of an expense to all of the products it touches. If fuel is use to manufacture a good and the fuel is used on multiple products and the cost behind that fuel is only applied to one product, then the costs measured for the goods would not be accurate (Investopedia, 2012). Another major reason direct costs would not be accurate is that direct labor costs are not applied at all or to the right products. Employees that provide direct labor to a product need to assist in keeping accurate records of whether they worked on the manufacturing of a product and how much time they spent. This is typically done through coding time on time cards to indicate when they worked on a product and for how long. If this is not done accurately, the overall labor costs of an item would be in accurate and this would lead to the
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