Responsibility for Direct Materials and Direct Labor. Basically, the best approach to assigning responsibility for any cost element is a study of those individuals who are in the most favored position to keep the costs under control. Direct material and direct labor costs are clearly traceable to the products being produced. Manufacturing overhead consists of indirect factory related costs and therefore, must be divided up and allocated to each unit of product produced.
The assignment of responsibility for overhead expenses to foremen, supervisors, and department heads allows a conceivable amount of control. It is admitted, however, that certain expenses are often trouble some; e.g., maintenance expenses. In the direct materials and direct labor areas, the assignment of responsibility for cost incurrences falls upon many shoulders and often becomes very obscure and nearly impossible to identify.
Of course, it seems advisable to insist upon the assignment on the basis of relative control rather than absolute control.
In the direct materials area, the variances or deviations from a predetermined norm or standard will result in :
(1) materials price variances,
(2) materials quantity, or mix and yield variances, and /or
(3) excessive defective work, rejects, or scrap costs.
In the direct labor area, the variances or deviations from a predetermined norm or standard will result in:
(1) pay rate variations,
(2) efficiency variations,
(3) and /or overtime costs.
However, these cost elements are not the only ones subject to change for which an executive may be held responsible. In future discussion the deviations from budgeted gross or net profit figures require explanation.
The changes in sales prices, in sales volume, and in sales mix are the responsibility of the marketing department. Yet the gross profit figure contains elements of costs as well, so that a further investigation is warranted. To know more on Direct Materials and Direct Labor, please search the term.
