These are the general ledger transactions posted by Ostendo for Labour and Overhead transactions.


TransactionDebitCredit
  

Job Cost Issues

TimesheetAssembly/Job WIP (Asset)Labour/Overhead Recoveries (COS)
Job or Assembly Issue
Assembly/Job WIP (Asset)
Overhead Recoveries (COS)
  

Employee and Asset 

PayrollDirect Wages (COS)Bank (Asset)
Asset Cost Job Issues
Asset Costs (COS)
Inventory (Asset) 
Asset Cost Job Issues
Asset Costs (COS)
Labour Recoveries (COS)
Asset Cost Job Issues
Asset Costs (COS)
Subcontract Service Cost (COS)
  

Assembly Receipt

Receipt Finished GoodsInventory (Asset)Assembly WIP (Asset)
Issues after Assembly Receipts when ClosedAssembly WIP Variance (COS)Assembly WIP (Asset)
  

Job Invoice

Invoice CostCost of Goods Sold (COS)Job WIP (Asset)
Job Costs after Job Invoiced then ClosedCost of Goods Sold (COS)Job WIP (Asset)


Labour and Overhead Recoveries

This is a management KPI for monitoring the accuracy of labour and overhead costs being recovered on jobs or assembly orders. 

The Labour Recoveries account should sit next to the Direct Wages and employee cost accounts under Cost of Sales. The Direct Wages and employee cost accounts will include payroll, Work Cover/ACC, and any other direct employee costs for staff who's labour is recorded on assembly orders or jobs for job costing. There will be Direct Wages and employee cost accounts under Expenses for staff who's labour is not recorded against assembly orders or jobs, such as office and sales staff.


The Overhead Recoveries account should sit next to the Asset Costs accounts under Cost of Sales. 


Labour and Overhead Recoveries are credited when timesheets and costs are posted to jobs or assembly orders, which compares to the actual Asset Costs or Direct Wages and other employee costs that are debited into Cost of Sales. These two accounts should trend to cancel each other out, which indicates that the cost of labour and overhead on assembly orders and jobs is accurate. If the Labour Recoveries offset the Direct Wages by too much, or the Overhead Recoveries offset the Direct Wages by too much, then the cost of labour or overhead is too high and your job costing will indicate a lower margin on jobs than you are achieving. If the Labour Recoveries do not offset the Direct Wages by enough, or the Overhead Recoveries do not offset the Asset Costs by enough, then the cost of labour and overhead is too low and your job costing will indicate a higher margin on jobs than you are achieving.


Labour and Overhead in WIP and COGS

The job cost of labour posted to assembly orders or jobs is debited to Work in Progress (Assembly or Job), which is in turn debited to Cost of Goods Sold. In this way the credit to Cost of Goods Sold by Labour Recoveries is offset by the debit to Cost of Goods Sold by Work in Progress, leaving the Direct Wages and other employee costs as the actual cost of labour in Cost of Sales.


In the case of manufacturing, when finished goods from an Assembly Order are receipted, the Work in Progress (which includes Labour Cost) is credited and Inventory is debited. The cost of the labour is therefore included in the inventory cost. When Inventory is sold and invoiced the inventory cost (which includes Labour Cost) is debited to Cost of Goods Sold. Any inventory that is written off will be posted to a Variance account in Cost of Sales.


In the case of jobs, when they are invoiced the Work in Progress (which includes Labour and Overhead Cost) is credited and Cost of Goods Sold is debited.


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