What on Earth is a Direct Labour Hour?§
Alright, listen up, accounting aficionados, because it’s time to dive into the fascinating world of the Direct Labour Hour (DLH)! Imagine this: you’re working diligently on your latest crafting masterpiece, and every hour you pour into the project is like pure gold in the accounting world. That golden hour is what we call a direct labour hour! 💰
In accounting speak, a direct labour hour is simply an hour spent by those heroic operators (yes, that’s you) working directly on a product, service, or cost unit. It’s the time you can trace right back to the production — no detective work needed!
Absorption Costing and Your New Favourite Term§
Let’s talk about absorption costing for a moment. This is where the direct labour hour really struts its stuff on the accounting stage. Absorption costing uses our dashing DLH to absorb (like your favourite sponge) the manufacturing overheads into the cost unit.
For Example:§
Imagine you’re manufacturing deluxe rubber ducks. 🦆 Each quacker takes about 2 direct labour hours to make. You tally up the time and voila, you have a neat little summary:
chart showing production times
Let’s Get Mathy§
Shall we crank some numbers? 🧮 Say your manufacturing overhead for the period is $10,000. You’ve clocked in a total of 500 direct labour hours. The overhead rate per DLH is:
$$ \frac{Total \ Manufacturing \ Overheads}{Total \ Direct \ Labour \ Hours} = \frac{10,000}{500} = 20 $$
So, each direct labour hour absorbs $20 of manufacturing overhead. 🛠️💸 Now you can cost each product more accurately, and don’t we all love a well-costed product?
Piecing It All Together§
Consider DLH as the thread that weaves the beautiful quilt of your cost unit’s expenses. 🧵 Without it, absorbing those tricky overheads would be chaos – and we don’t want that! Remember: each hour counts, so count each hour!
Test Your Knowledge with Quizzes!§
Feel like a DLH whiz already? Test yourself below:
