470 Customer Paint Labor – Cars & Trucks

Sales

Fixed Operations

Sales Synopsis

Account 470 is established to record Body Shop Paint sales paid directly by customers for repairs performed by the Body Shop Department.

Debits

Credits

 

  1. Actual selling price of Body Shop Paint Labor sold to customers

 

670 Customer Paint Labor – Cars & Trucks

Cost of Sales

Fixed Operations

Cost of Sales Synopsis

Account 670 is established to record the Cost of Sales, which is defined as compensation paid to technicians, for customer paid Body Shop Paint Labor.

Debits

Credits

  1. Cost of Body Shop Paint Labor sold to customers

 

 

Example 1

Record a customer cash sale of $3,740 for body shop labor, parts and materials.  The body labor sale is $740 and the paint labor sale is $595.  The parts sale is $1,975.  The paint and body shop materials are $315 and the sales tax is $115.  The cost of the labor is $795 with $350 due to paint labor and $445 for body shop labor.  The parts cost is $1,380.  The cost of body shop materials is $235.

Journal: Service Sales - Cash

Entry:

 

Debit

Credit

Account 225

Cash Sales

$3,740

 

Account 670

Cost of Sales – Customer Paint Labor – Cars & Trucks

$350

 

Account 671

Cost of Sales – Customer Body Labor – Cars & Trucks

$445

 

Account 677

Cost of Sales – Parts - Body Customer Repair Orders – Cars & Trucks

$1,380

 

Account 679

Cost of Sales – Paint & Body Shop Materials

$235

 

Account 242

Inventory – Parts & Accessories

 

$1,380

Account 245

Inventory – Paint & Body Shop Materials

 

$235

Account 247B

Inventory – Work in Process – Body Shop

 

$795

Account 324

Sales Taxes Payable

 

$115

Account 470

Sales – Customer Paint Labor – Cars & Trucks

 

$595

Account 471

Sales – Customer Body Labor – Cars & Trucks

 

$740

Account 477

Sales – Parts – Body Customer Repair Orders – Parts & Trucks

 

$1,975

Account 479

Sales – Paint & Body Shop Materials

 

$315

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.

·        Actual costing cannot be accomplished.

·        Percentage costing, in this instance, may be accomplished as illustrated below with the exception of Step #1, which should be revised as follows:

·        Total Productive Wages including incentives
( 8 Technicians for a 12 week test period)

 

 

 

 

 

$ 54,910

·        Total Hours Worked

/ 3,800

·        Hourly Prime Cost of Labor

$ 14.45

 

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.

 

 

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.

 

 

Number of

Technicians

 

Hourly

Rate

 

Compensation

 

2

X

$16.00

=

$ 32.00

 

3

X

$17.00

=

$51.00

 

3

X

$15.00

=

$45.00

TOTAL

8

 

 

 

$ 128.00

 

 

 

 

 

/ 8

 

 

 

Hourly Prime

Cost of Labor

$ 16.00

 

 

 

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

 

!  Total customer labor sales on repair orders examined

$ 21,900

!  Number of labor hours sold on repair orders examined

/ 500

!  Effective Customer Selling Price of Labor

$ 43.80

 

 

 

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

 

!  Hourly prime cost of labor (#1)

$ 16.00

!  Effective customer selling price of labor (#2)

/ 43.80

!  Costing percentage of Customer Labor Sales

36.5%

 

 

 

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

 

!  Hourly prime cost of labor (#1)

$ 16.00

!  Internal selling price of labor

/ 39.42

!  Costing percentage of Customer Labor Sales

40.6%

 

 

NOTE:

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