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Business: How to Calculate Labour Costs Per Unit

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Labour costs are often one of the biggest costs faced by any business. Calculating labour costs is not simply about adding up a wages bill, but about working out how efficiently and quickly goods are being produced in relation to the wages being paid. While there will be some variances, direct labour costs should usually remain within a certain range.

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Business: How to Calculate Labour Costs Per Unit

  1. 1. Ahmed Dahab Business LABOUR COSTS PER UNIT How to Calculate
  2. 2. Ahmed Dahab TECHNICAL FEASIBILITY STUDY Labour costs are often one of the biggest costs faced by any business. Calculating la- bour costs is not simply about adding up a wages bill, but about working out how ef- ficiently and quickly goods are being pro- duced in relation to the wages being paid. While there will be some variances, direct labour costs should usually remain within a certain range. Business: How to Calculate Labour Costs Per Unit
  3. 3. Ahmed Dahab Hourly Rate The hourly rate per employee includes the direct amount of salary they are paid, plus the relevant percentage of payroll taxes and any benefits that might be included. If an employee has weekly payroll taxes of �60 and is paid �10 per hour, working a standard 40 hour week, the hourly rate for the business of hiring that employee is �11.50. Labour Hours Direct labour hours refer to the amount of time it typically takes to complete one unit of finished product. If goods are produced in batches, the number of hours taken to produce a batch should be divided by the number of items in the batch to calculate the direct labour hours for one single item. Cost Per Unit Once these two calculations have been made, the hour- ly rate can be multiplied by the number of direct labour hours per unit to work out the per unit labour costs for each item produced.
  4. 4. You can learn more about calculating labour costs and other types of costs in a technical feasibility study by visiting the blog of Ahmed Dahab.

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