Utah General Contractors - Business and Law Practice Exam

What are indirect labor costs sometimes referred to as?

1. Overhead costs

2. Labor Burden

3. Variable costs

4. Fixed expenses

The correct answer is: Labor Burden

Indirect labor costs are often referred to as labor burden because they encompass the costs associated with employees who are not directly involved in the production of a product or delivery of a service. This includes expenses such as payroll taxes, benefits, insurance, and other costs related to maintaining a workforce that contributes indirectly to the company's operations. Recognizing labor burden as indirect labor costs is essential for accurate budgeting and financial planning. This concept helps contractors understand the full scope of their labor expenses beyond just direct wages, ensuring a comprehensive view of the costs associated with employing staff. Overhead costs can also include indirect labor costs, but they encompass a wider range of expenses that support the business as a whole. Variable costs refer to costs that change with the level of production, while fixed expenses are those that remain constant regardless of production levels. Neither of these terms focuses specifically on labor-related costs, distinguishing the concept of labor burden as the more accurate choice for describing indirect labor expenses.