Labor routing definition

What is a Labor Routing?

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 ways noted below.

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, irrespective of production volume.

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.

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