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Managerial Accounting: Direct Labor as a variable or fixed

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Throughout the corporate world, businesses are transforming labor into a more flexible (and variable) cost. Among such companies are Hewlett- Packard, General Electric, DuPont, Sun Microsystems, and British Airways. Discuss whether direct labor is a fixed or a variable cost. What are the pros and cons of management treating direct labor as a variable cost? Are there ethical issues to be considered here?

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Solution Summary

Your tutorial is 308 words and gives the circumstances that would likely indicate whether direct labor is variable or fixed (it is usually variable but not always).

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Direct labor is usually variable but total labor can be variable or fixed. It depends on how it "behaves" in the business.

If direct labor is mostly hourly, and you are not committed to keeping workers when they are not busy, you have a variable cost. Temporary labor usually works as perfectly variable. You buy as much as you need and increase or decrease as needed. This is rarely the actual situation in many businesses.

While the firm may pay by the hour, it ...

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