Cost of Labour Applied to Jobs

Guide for when the dealer wants to show a cost of sale value for labor hours charged to jobs as part of the determination of Gross Profit


Cost of Labour Applied to Jobs

In the case where the dealer wants to show a cost of sale value for labor hours charged to jobs as part of the determination of Gross Profit, they must set up a special GL account called Cost of Labor Applied to Jobs. This account is normally an expense account that is positioned next to the GL account for paid service wages, salaries, and benefits. It should receive only credit postings for the cost value of labour that is charged (or debited) to a cost of sale account.

Costing Labour Sales

Each time a labour line is added to a SO in DealerVu the cost per the labour hours worked (clocked by a technician to the procedure) is attached to the SO. For example, 2 hours is going to be invoiced to the customer for a repair at $70 per hour ($140.00 billed) but the technician worked 2.2 hours on the procedure at an internal cost per hour of $25.00 for a total of $55.00. The technician was paid $18.00 per hour plus payroll overheads/benefits of say 12%. So if the technician was available only to perform this job in the accounting period and he was paid for a total of 3 hours that he was available (punched in and out) the posting from the payroll distribution would be for 3 x $18 = $54 + 12% = $60.48.

Follow through the postings:

1. Work on the SO is performed and the invoice paid by the customer:

2. The payroll is run and the technician is paid a net of $48.00 after deductions:

Profit and Loss Statement:


 

              * 55.00/60.48 x 100 = 90.40% labor $ efficiency

If you did not cost your labour sales with a cost per actual hour worked on a SO procedure you would not need the Cost of Labour Applied to Jobs account. Instead, you could choose to either show no cost of labour sale or treat the paid wages plus benefits as the cost of labour sales. Under the first scenario your Profit and Loss Statement would be:



Under the first scenario your Profit and Loss Statement would be: