Is a direct labor rate a variable cost or a fixed cost?

Question

Why?

Answer 1

Labor is always a variable cost, even if it is contracted labor. Fixed cost is defined as any expenses you would still have if you shut everything down. For example, if a factory shuts down, they would still have payments on their equipment. Variable costs are costs that increase or decrease with production. So labor, raw materials, etc are variable costs. This holds true in both the short & long term, despite what others have posted here.

Answer 2

If you signed a contract with labor which requires you to pay them either way, then this is a fixed cost. If not, then you are faced with a variable cost

Answer 3

Variable costs are costs that can be varied flexibly as conditions change. Fixed costs are the costs of the investments, i.e. capital, used by the firm, on the idea that these reflect a long-term commitment that can be recovered only by wearing them out in the production of goods and services for sale. (i.e. amortization) which is a negative entry on your operating statement. All labor is a variable cost.

Answer 4

In the two input model of production the two inputs are labor and capital. The short run in that model is defined as a period of time too short to vary the quantity of capital input, so labor is the only variable input in the short run. As a result, in order to produce more output in the short run the firm must use more labor, since its capital input is fixed. Accordingly, short run cost assoocaited with labor (i.e., the price of labor times the quantity of labor) are variable costs and costs associated with capital are fixed costs in the short run. In the long run, however, both inputs are variable, so all costs are variable costs in the long run.

Answer 5

if you are focusing of "short-term" then it is a fixed cost because generally you make the same amount hourly wage rate all year long.
However, if you are focusing on "long-term" then it would definitely be a variable cost because labor rates are always adjusting for things like inflation and increased skill.

hope that helped!

Answer 6

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Its a variable cost. WHY? Because the amount of that cost VARIES depending on the number of hours that your employee work in that given time period.

Answer 7

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Answer 8

It can be both. Like salaries of Administrative and Support Departments (Finance, HR, Facilities) have fixed salaries. Direct labor where people are directly involved in production are variable as they are paid hourly and can increase or decrease based on the hours or production.