In construction cost accounting, the wages of supervisors and material handlers should be charged to which category for accurate job costing and financial reporting?

Introduction / Context:
Accurate allocation of labour costs is essential for project profitability analysis and pricing future work. While crew members who directly install work are charged to direct labour, supervisory staff and material handlers support production indirectly. This distinction affects unit rates, overhead recovery, and variance analysis.

Given Data / Assumptions:

• Supervisors and material handlers do not perform measurable installation quantities directly.
• They facilitate, coordinate, and move resources for the production crews.
• We must choose the proper accounting category.

Concept / Approach:

Direct labour is tied to specific pay items and quantities (e.g., m³ of concrete placed). Indirect labour supports multiple activities and cannot be traced to a single measurable output. Therefore, supervisors and handlers are classified as indirect labour cost, typically included within site overheads for reporting, but tracked as labour for payroll and burdening calculations.

Step-by-Step Solution:

Verification / Alternative check:

Standard cost systems and WBS structures separate direct crew hours from supervision/handling to prevent skewing unit productivity metrics.

Why Other Options Are Wrong:

• Over head: Broad label; more precise classification is indirect labour cost.
• Direct labour cost: Incorrect, as their work does not map to a specific quantity installed.
• None/Capitalized: Not appropriate for routine operating labour.

Common Pitfalls:

• Charging supervisors to direct items inflates apparent labour productivity.
• Failing to budget indirect labour leads to systematic underruns in direct items and overruns in overhead.

Final Answer:

indirect labour cost