| Abstract: | Cost/managerial textbook authors have typically defined and treated direct labor production costs as a pure variable cost that is proportionally related to the level of output. One implication of such treatment is that management will hire and fire workers as output levels vary. Historically, management did frequently adjust labor to reflect seasonal variations in sales and short-term changes in demand levels. This attitude was incorporated into the at-will employment rule.In the last few decades, the at-will employment rule has been successfully challenged in court. Other factors, such as the need for a highly trained work force and employment contract guarantees, have changed the nature of direct labor to that of a mixed or, in some cases, a fixed cost. In addition, at some highly automated plants, direct labor cost may be a small enough proportion of manufacturing cost to combine with overhead as a conversion cost.Accounting educators need to consider the effect this change may have on various managerial practices and methods. These include operational budgeting and cost-volume-profit analysis. |
