# How to Determine Direct Labor Standards

*Direct labor* is the cost of paying your employees to make products. Proper planning requires setting standards with respect to two factors: the direct labor standard rate and the direct labor standard hours per unit.

To compute the *direct labor standard rate *or SR (the cost of direct labor), consider all the costs required for a single hour of direct labor. For example, suppose Band Book usually pays employees $9 per hour. Furthermore, it pays an additional $1 per hour for payroll taxes and, on average, $2 per hour for fringe benefits. As shown, the direct labor standard rate equals $12 per hour.

You also need to estimate the amount of direct labor time needed to make a single unit, the *direct labor standard hours* (SH) per unit. This measurement estimates how long employees take, on average, to produce a single unit. Include in this rate the time needed for employee breaks, cleanups, and setups.

For example, employees at Band Book Company need three hours to produce a single case of books, plus an average of 30 minutes of setup time and 30 minutes of break time. Therefore, the direct materials standard quantity equals four hours.