Q.What is meant by labour cost? Distinguish between Direct Labour and Indirect Labour, giving one example of each.

Labour cost is the total payment for the human effort used in production, and it splits into direct labour (traceable to a job) and indirect labour (not traceable, hence overhead).

Labour cost includes wages, allowances, overtime, bonus and employer's statutory contributions paid for human effort. Direct labour can be conveniently identified with a specific job/product and forms part of Prime Cost; indirect labour cannot be so identified and is treated as Overhead.

Labour cost is the total of all payments made in return for the human effort — physical and mental — used to convert raw materials into finished goods or to render a service. It includes basic wages and salaries, dearness and other allowances, overtime pay, bonus, and the employer's contribution to provident fund and other statutory schemes.

For cost-accounting purposes, labour is classified into two types:

Direct Labour is labour that can be conveniently and economically identified with, and charged directly to, a specific job, product or process — the workers who actually convert the material into the product. It forms part of Prime Cost. Example: a machine operator running a lathe on a particular order, or a tailor stitching a specific garment.

Indirect Labour is labour that cannot be conveniently identified with a particular job or product, though it is necessary for production generally. Its cost is treated as Overhead. Example: a factory supervisor, a timekeeper, or maintenance staff.

Students often think 'direct' means hard-working and 'indirect' means less important. The real test is traceability: can the cost of this labour be conveniently charged to ONE specific job/product? If yes → direct (Prime Cost); if no → indirect (Overhead). A supervisor may work very hard, but is still indirect labour.