460A Customer Labor – Cars & Light Duty Trucks

461A Customer Labor – Commercial, Fleet, &
Medium Duty Trucks

Sales

Fixed Operations

Sales Synopsis

Accounts 460A and 461A are established to record Mechanical Labor sales paid directly by customers for repairs performed by the Mechanical Department.  Account 460A is for Cars & Light Duty Trucks and Account 461A is for Commercial, Fleet, & Medium Duty Trucks.

660A Customer Labor – Cars & Light Duty Trucks

661A Customer Labor – Commercial, Fleet, &
Medium Duty Trucks

Cost of Sales

Fixed Operations

Cost of Sales Synopsis

Accounts 660A and 661A, respectively, are established to record the Cost of Sales, which is defined as compensation paid to technicians, for customer paid Mechanical Labor.

Example 1

Record a customer cash sale of $618 for mechanical labor and parts.  The customer labor is $340.  The part sale is $250.  The sales tax is $13 and the shop supplies are $15.  The cost of the labor is $100.  The parts cost is $80 and the cost of the shop supplies is $10.

Journal: Service Sales - Cash

Example 2

Record a customer cash sale of $1,326 for mechanical labor and parts.  The customer labor is $500.  The parts sale is $750.  The sales tax is $38 and the shop supplies are $38.  The cost of the labor is $125.  The parts cost is $500 and the cost of the shop supplies is $28.

Journal: Service Sales - Cash

Note:

Labor sales can be cost either on an actual basis or on a percentage basis.  However, it is recommended that whenever practicable labor sales be costed on actual basis because material losses of productive time may be concealed by the inaccuracies inherent in percentage costing methods.  Such inaccuracies can result from failure to update costing percentages when changes occur in the compensation of technicians and in the structural of selling prices of labor, and from other reasons.

The following examples show how labor may be costed under various compensation plans:

1.               Technicians are paid on a flat rate hour and customers are billed on a flat rate hour.

·        Actual costing may be accompanied by multiplying the technician’s flat rate by the flat rate hours spent on a particular job.

·        Percentage costing may be accomplished as illustrated below.

2.               Technicians are paid an hourly rate and customers are billed on a flat rate hour.

·        Actual costing may be accomplished by multiplying the technician’s hourly rate by the hours spent on a particular job.

·        Percentage costing cannot be accomplished with any degree of accuracy.

3.               Technicians are paid on an hourly rate and customers are billed on an hourly rate.

·        Actual costing may be accomplished by multiplying the technician’s hourly rate by the hours spent on a particular job.

·        Percentage costing may be accomplished as illustrated below.

4.               Technicians are paid a percentage of customer labor sales.

·        Actual costing may be accomplished by multiplying each labor sale by the percentage received by the technician.  Actual costing may also be accomplished by applying the percentage to the total labor sales at the month end.

·        Percentage costing does not apply under these conditions.

5.               Technicians are paid a minimum guarantee with additional compensation based on production which cannot be determined until the end of a pay period.

It is preferred that added incentive pay of technicians and compensation of technicians’ helpers be comprehended in the costing of labor sales.  Therefore such pay should be debited to Acct. 247.  If this is not practicable, such pay should be debited to Acct. 665 and 675, as applicable.

Transactions, which are related, should be recorded in separate sub-accounts.  Sub-accounts serve to keep records organized for future analysis and auditing.  The sub-accounts in these examples are designated by a letter following the account number (suffix).  Please refer to your DSP's instructions for establishing sub-accounts.

EXAMPLE FOR DEVELOPING PERCENTAGES TO

BE USED IN COSTING LABOR SALES

STEP #1:   Determine the weighted average hourly rate of technicians.  This is the hourly prime cost of labor.

STEP #2:   Determine the effective selling price of customer labor by sampling a consecutive number of repair orders.

STEP #3:   Determine the percent of the effective customer selling price that represents cost.

STEP #4:   Determine the percent of internal selling price that represents cost.

NOTE:

This study should be repeated whenever changes occur in either the hourly rate of technicians or the selling price of labor.