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Direct-labor costs:

The direct labor cost is for the labor directly involved in manufacturing (productive labor). This cost includes all labor from the time raw materials first are handled to the time when the product is finished. This period generally is referred to as floor-to-floor time. For example, a machine operator picks up a round barfrom a bin, machines it into the shape of a threaded rod, and places it into another bin. The direct-labor cost is calculated by multiplying the labor rate (hourly wage, including benefits) by the time that the worker spends producing the part.

(Kalpakjian, S., Schmid, S. R., Manufacturing Engineering and Technology, 5th ed., p. 1262)

Cost reduction:

Cost reduction requires a study on how the costs described previously are interreleated, using relative costs as an important parameter. The unit cost of a product can vary widely. For example, some parts may be made from expensive materials but require very little processing, such as for minted gold coins. Consequently, the cost of materials relative to that of direct labor is high.

By contrast, some products may require several complex and expensive production steps to process relatively inexpensive materials, yet several different manufacturing operations are involved in the making of the housing, rotor, bearings, brushes, and various other components. Unless highly automated, assembly operations for such products can become a significant portion of the overall cost.

(Kalpakjian, S., Schmid, S. R., Manufacturing Engineering and Technology, 5th ed., p. 1265)

Outsourcing:

Outsourcing has been an issue of major attention, notably in the popular media. Undoubtedly, it will continue to be a significant concern. Low labor costs (such as those in China, India, Mexico, and Pacific Rim countries) can be countered effectively, in the West and in the Japan by improving productivity, reducing the labor component of products, and further improving the efficiency and manufacturing operations. The economic justification for outsourcing is complex and controversial.

(Kalpakjian, S., Schmid, S. R., Manufacturing Engineering and Technology, 5th ed., p. 1264)

Burden rate:

Indirect-labor costs are generated in the servicing of the total manufacturing operation, consisting of such activities as supervision, repair, maintenance, quality control, engineering, research, and sales; it also includes the cost of office staff. Because they do not contribute directly to the production of finished parts, or they not chargeable to a specific product, these costs are referred to as burden rate (overhead) and are charged proportionally to all products.

(Kalpakjian, S., Schmid, S. R., Manufacturing Engineering and Technology, 5th ed., p. 1264)