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A major element in the manufacturing environment too often overlooked is the calculation of direct labor costs that are associated with the manufacturing process. Therein lies the problem: If manufacturers are not tracking direct labor costs, how do they know what to charge clients? Perhaps what’s worse, how do they maintain an acceptable profit margin?
If you operate within the manufacturing sector and have been on the fence about the tracking of direct labor costs, you’ve stumbled upon the right blog. Here, we’re going to explore the reasons why direct labor is not tracked (or not tracked accurately), the importance of tracking labor costs, the components that comprise calculating labor costs and more. By the time we’re finished, you’ll have a much better grasp on direct labor costs and their relationship with the manufacturing process.
In as succinct a way as possible, we’re going to go over the primary reasons why direct labor isn’t always tracked (or tracked inaccurately, in many cases):
Without tracking labor costs, manufacturing processes suffer in a myriad of ways; here are some examples:
To that end, the implementation of tracking labor costs enables organizations to:
Direct manufacturing labor costs are associated with the laborers in your shop who work on the goods you’re manufacturing directly; it’s important to measure this cost for a business, as this is essentially a direct measure of how much of your manufacturing costs are going towards paying your laborers. What’s more, knowing this can help when making decisions, especially when analyzing the efficiency of your operations.
The formula is rather simple: You identify all of your direct laborers and then compute their total wages. In so doing, you:
Through products like Insight Works’ innovative Shop Floor Insight, this entire process that we’ve been talking about can be made uber-simple by integrating barcoded time capture. What does a barcoded time capture solution bring to the table?
Shop Floor Insight from Insight Works does all this and much more. If you’re ready to get a better handle on labor costs in your manufacturing environment, Insight Works can help and take your operations to hassle-free new heights.
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