067 Policy Work - Parts and Service

Expenses

Semi-Fixed

Synopsis

From time to time, a service (or parts) customer may return to the dealership with a complaint (“comeback”).  Account 067, Policy Work – Parts and Service is established to record follow-up repairs performed at no charge to the customer.

Debits

Credits

  1. Internal selling price of the labor and materials for repairing and adjusting defective service work and for replacing defective parts and accessories sold for which neither the customer nor the manufacturer will be charged

  2. Reductions in or adjustments to total charges on customer repair orders as a result of customer dissatisfaction with the work done or the amount of total charges

 

 

Example 1

Record the write-off of $755 for warranty claims not submitted timely.

Journal: General Journal

Entry:

 

Debit

Credit

Account 067-05

Policy Work Expense – Service

$170

 

Account 067-07

Policy Work Expense – Parts & Accessories

$585

 

Account 263

Receivables – Warranty Claims

 

$755

Example 2

Record a repair order in the amount of $310 for mechanical labor performed on a service customer’s vehicle.  The customer was not completely satisfied with the service and the dealership split the cost with the customer.  The customer labor is $170.  The parts sale is $120, the other supplies are $5 and sales tax is $15.  The cost of labor is $50.  The parts cost is $85 and the shop supplies cost is $4.  The customer paid $155 and the other $155 is expensed to policy.

Journal: Service Sales - Cash

Entry:

 

Debit

Credit

Account 225

Cash Sales

$155

 

Account 660A

Cost of Sales – Customer Labor – Cars & Light Duty Trucks

$50

 

Account 669

Cost of Sales – Shop Supplies

$4

 

Account 667

Cost of Sales – Parts – Mechanical Repair Orders Cars & Light Duty Trucks

$85

 

Account 067-05

Policy Work – Parts & Service – Mechanical Department

$155

 

Account 460A

Sales – Customer Labor – Cars & Light Duty Trucks

 

$170

Account 467

Sales – Parts – Mechanical Repair Orders Cars & Light Duty Trucks

 

$120

Account 469

Sales – Other Supplies

 

$5

Account 242

Inventory – Parts & Accessories

 

$85

Account 242

Inventory – Parts & Accessories

 

$4

Account 247A

Inventory – Work in Process - Mechanical

 

$50

Account 324

Sales Taxes Payable

 

$15

Distribution of Expenses

 

Departmental Distribution

067 Policy Work-

Parts & Service

New Veh.

Used Veh.

Lease & Rental

Mechanical

Body Shop

Parts & Access.

Gen & Admin.

 

01

02

03

05

06

07

09

Replace defective parts installed by dealership

 

 

 

 

 

Total expense

 

Re-do defective service work performed by a technician no longer employed

 

 

 

Mechanical work

Body shop work

 

 

Reductions in or adjustments to total charges on customer repair orders as a result of customer dissatisfaction with the work done or the amount of total charges

 

 

 

Mechanical work

Body shop work

 

 

Comments

For the sake of good customer relations, it may be necessary to provide service “free of charge” to complaining customers.  There are occasional instances of poor service work or defective parts that give a customer a valid reason to ask for a policy adjustment.  Each incident should be handled on a case-by-case basis.

An analysis of Policy Work may show patterns that might be correctable.  For example, if one technician has more than an average number of “comebacks”, the technician might need more training, the appropriate tools or cautioned “not to rush” on each repair.  Recognizing patterns is the first step toward correcting the underlying problems and controlling Policy Work Expense.