Avenir states that labor costs usually apply to salaries charged for mental or physical activity to perform a job, but labor costs in business accounting include labor cost expenses, medical care, health care, workers compensation insurance, pension payments and taxes on those salaries, as well as other benefits of which the corporation is liable. Those costs are classified as labor direct or indirect. Direct labor costs are those paid to employees who are directly involved in the manufacture of goods or services, such as the wages of workers who assemble vehicles in a car factory. Wages of workers who are not specifically involved in the manufacture of products or in the provision of services to customers, such as an office manager, are known as indirect labor.
The sale of goods and services to a client is normally referred to as income. Throughout financial analysis, revenue is generally used as a basis for calculating the ratios of financial analysis and represents the total amount of business transactions produced within a given time by operations. Net sales is the revenue figure used to determine the labor-to-revenue ratio, as it excludes sales discounts and returns on sales to give a more accurate figure. Revenue and labor figures are normally lifted at the end of each accounting period from a companys balance sheet, which may be monthly, quarterly or yearly.
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