Discuss, with reasons, whether or not you agree with the Production Director’s view that the direct labour expense is a fixed manufacturing overhead cost.

I do not agree with the Production Director’s view that the direct labour expense is a fixed manufacturing overhead cost. It is so because the cost of labour can either be fixed or variable depending on if it changes with changes in volume. If an increase in production leads to an increase of labour costs, then this would be considered as a variable cost. However, if it is possible to maintain the same production level even with changes in labour cost, then it will be viewed as a fix cost.

Since direct labor costs are directly related with output and can’t remain constant no matter how much production is made, they shouldn’t be considered as a manufacturing overhead fixed cost. Even though they may have been relatively stable in the past due to union contracts, or wage levels that were set over a period of years, these costs are still variable because any fluctuation will impact total production.