462 Warranty Claim Labor - Mechanical

Sales

Fixed Operations

Sales Synopsis

The purpose of this account is to record Warranty Claim Labor Sales performed by the Mechanical Department.

Debits

Credits

 

  1. Actual selling price (at claim rate) of mechanical labor for which warranty and transportation claims are filed

 

662 Warranty Claim Labor - Mechanical

Cost of Sales

Fixed Operations

Cost of Sales Synopsis

Account 662 is established to record the Cost of Sales, which is defined as compensation paid to technicians for Warranty Claim repairs.

Debits

Credits

  1. Cost of mechanical labor for which warranty and transportation claims are filed

 

 

Example 1

Record a warranty repair order for a mechanical customer’s car in the amount of $755.  The warranty claim labor is $170.  The warranty parts sale is $585.  The cost of labor is $50 and the parts cost is $450.

Journal: Warranty Sales

Entry:

 

Debit

Credit

Account 263

Accounts Receivables – Warranty Claims

$755

 

Account 662

Cost of Sales – Warranty Claim Labor – Mechanical

$50

 

Account 680

Cost of Sales – Parts – Warranty Claims

$450

 

Account 242

Inventory – Parts & Accessories

 

$450

Account 247A

Inventory – Work in Process – Mechanical

 

$50

Account 462

Sales – Warranty Claim Labor – Mechanical

 

$170

Account 480

Sales – Parts – Warranty Claims

 

$585

Note:

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 other reasons.

 

Assure that Repair Order templates, and accounting are set up correctly by the DSP and maintained whenever technicians have payroll changes.  Technician incentives or bonuses should be considered cost of labor sales and debited to A/C 665 and 675 as applicable.  However, holiday, vacation, and sick pay should not be charged to Cost of Labor Sales, but as a non-productive wage expense in A/C 24 - Absentee Compensation.

 

Before closing each month, assure that the balance in A/C 247 - Work in Process, matches the total cost of labor on open (unclosed) R.O.'s, any difference should be adjusted to A/C 665 or 675 - Labor Adjustment.