2 Replies Latest reply on Sep 5, 2007 12:28 AM by Carl Lewis

    Labor on the Bill of Materials

    Ben Peterson



      How do you account for the labor that goes into producing items. Should the BOM include an item, lets call it L10, and that is labor at $10/hr ? After a while we run out of inventory of our L10 or labor. What is the best way to correct this?<br/>


      Thank you.

        • 1. RE: Labor on the Bill of Materials
          James McCord

          We got round this issue by creating item numbers for labor, overhead and depreciation (several different rates also).
          We set the part up to be an inventory item but coded the inventory account and the expense account to the same GL account.(charges to WIP)
          To add units we do a goods receipt for the number of units. SAP will add the units to inventory but the GL entry debits and credits the same account so has no effect on the overall P&L. When we issue the item to the BOM the entry is made to the "Charges to WIP" as a credit to the P&L and a debit to WIP on the balance sheet.
          When the product is completed to stock the WIP is relieved and Finished goods inventory is increased.
          This has the efect of reducing your actual expense and moving the cost through WIP into Finished Goods.
          We keep the charges to WIP in their own section of the P&L thereby retaining the integrity of the actual costs incurred.

          • 2. RE: Labor on the Bill of Materials
            Carl Lewis


            Another way to do this is to create an item that is a sales only item. This means that youneed no "inventory quantity" to be received in order to use this type of item ont he BOM.

            In additional the item must be set up as:
            1. standard cost
            2. you should track the GL Ledger setting at the item level in order to control the GL postings exactly as you want.

            If you need additional help for this email me at carl@omegagroup.com

            I will send you some screen shots of an item and BOM set up in this manner.

            Carl Lewis