A labor routing itemizes the estimated amount of labor that will be required at each production workstation in order to complete a product. A labor routing is typically compiled for any product that is to be manufactured on a recurring basis. Routings can be used in the following ways:
- Labor budgeting. Labor routings can be multiplied by the number of products to be produced in order to estimate the total amount of labor that will be required within a certain period of time. This results in only a rough estimate, since the actual headcount is not completely variable with the number of units to be produced. Instead, a certain minimum staffing level is needed for most workstations.
- Cost accounting. Labor routings can be used to calculate the value of inventory contained within work-in-process and finished goods inventory, which can be used within a standard costing system to place a value on ending inventory for the financial statements.
- Efficiency analysis. Labor routings can be used to set a baseline amount of labor hours that will be needed, which can then be compared to actual hours incurred to develop a labor efficiency variance. However, the results are only useful if the underlying labor standards are reasonable.